If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.
☐
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
☒
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ☒ | International Financial Reporting Standards as issued by the International Accounting Standards Board ☐ | Other ☐ |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
☐
Item 17 ☐
Item 18If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule☐ Yes ☒ No
12b-2
of the Exchange Act). ☐ Yes(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
☐
Yes☐
NoTABLE OF CONTENTS
Page | ||||||||
PART I | ||||||||
Item 1. | 2 | |||||||
Item 2. | 2 | |||||||
Item 3. | 2 | |||||||
Item 4. | 22 | |||||||
Item 4A. | 49 | |||||||
Item 5. | 49 | |||||||
Item 6. | 88 | |||||||
Item 7. | 115 | |||||||
Item 8. | 116 | |||||||
Item 9. | 117 | |||||||
Item 10. | 117 | |||||||
Item 11. | 125 | |||||||
Item 12. | 144 | |||||||
PART II | ||||||||
Item 13. | 146 | |||||||
Item 14. | 146 | |||||||
Item 15. | 146 | |||||||
Item 16A. | 146 | |||||||
Item 16B. | 146 | |||||||
Item 16C. | 147 | |||||||
Item 16D. | 148 | |||||||
Item 16E. | 148 | |||||||
Item 16F. | 149 | |||||||
Item 16G. | 149 | |||||||
Item 16H. | 150 | |||||||
Item 16I. | 150 | |||||||
PART III | ||||||||
Item 17. | 151 | |||||||
Item 18. | 151 | |||||||
Item 19. | 151 | |||||||
1
As used in this annual report, references to th
“Company”
Nomura
, the
Nomura Group
,
we
,
us
and “our
are to Nomura Holdings, Inc. and, except as the context otherwise requires, its consolidated subsidiaries. As part of certain line items in Nomura’s financial statements and information included in this annual report, references to “NHI” are to Nomura Holdings, Inc.
As used in this annual report, “yen” or “¥” means the lawful currency of Japan, “dollar” or “$” means the lawful currency of the United States of America (“U.S.”), and “EUR” means the lawful currency of the member states of the European Monetary Union.
As used in this annual report, “ADS” means an American Depositary Share, currently representing one share of the Company’s common stock, and “ADR” means an American Depositary Receipt evidencing one or more ADSs. See “Rights of ADR Holders” under Item 10.B of this annual report.
As used in this annual report, except as the context otherwise requires, the “Companies Act” means the Companies Act of Japan and the “FSA” means the Financial Services Agency of Japan.
Amounts shown in this annual report have been rounded to the nearest indicated digit unless otherwise specified. In tables and graphs with rounded figures, sums may not add up due to rounding.
PART I
Item 1. Identity of Directors, Senior Management and Advisers
Not applicable.
Item 2. Offer Statistics and Expected Timetable
Not applicable.
Item 3. Key Information
A. Selected Financial Data
Millions of yen, except per share data and percentages | ||||||||||||||||||||
Year ended March 31 | ||||||||||||||||||||
2016 | 2017 | 2018 | 2019 | 2020 | ||||||||||||||||
Statement of income data: | ||||||||||||||||||||
Revenue | ¥ | 1,723,096 | ¥ | 1,715,516 | ¥ | 1,972,158 | ¥ | 1,835,118 | ¥ | 1,952,482 | ||||||||||
Interest expense | 327,415 | 312,319 | 475,189 | 718,348 | 664,653 | |||||||||||||||
Net revenue | 1,395,681 | 1,403,197 | 1,496,969 | 1,116,770 | 1,287,829 | |||||||||||||||
Non-interest expenses | 1,230,523 | 1,080,402 | 1,168,811 | 1,154,471 | 1,039,568 | |||||||||||||||
Income (loss) before income taxes | 165,158 | 322,795 | 328,158 | (37,701 | ) | 248,261 | ||||||||||||||
Income tax expense | 22,596 | 80,229 | 103,866 | 57,010 | 28,894 | |||||||||||||||
Net income (loss) | ¥ | 142,562 | ¥ | 242,566 | ¥ | 224,292 | ¥ | (94,711 | ) | ¥ | 219,367 | |||||||||
Less: Net income attributable to noncontrolling interests | 11,012 | 2,949 | 4,949 | 5,731 | 2,369 | |||||||||||||||
Net income (loss) attributable to Nomura Holdings, Inc. (“NHI”) shareholders | ¥ | 131,550 | ¥ | 239,617 | ¥ | 219,343 | ¥ | (100,442 | ) | ¥ | 216,998 | |||||||||
Balance sheet data (period end): | ||||||||||||||||||||
Total assets (1) | ¥ | 40,934,217 | ¥ | 42,531,972 | ¥ | 40,343,947 | ¥ | 40,969,439 | ¥ | 43,999,815 | ||||||||||
Total NHI shareholders’ equity | 2,700,239 | 2,789,916 | 2,749,320 | 2,631,061 | 2,653,467 | |||||||||||||||
Total equity | 2,743,015 | 2,843,791 | 2,799,824 | 2,680,793 | 2,731,264 | |||||||||||||||
Common stock | 594,493 | 594,493 | 594,493 | 594,493 | 594,493 | |||||||||||||||
Per share data: | ||||||||||||||||||||
Net income (loss) attributable to NHI shareholders — | ¥ | 36.53 | ¥ | 67.29 | ¥ | 63.13 | ¥ | (29.90 | ) | ¥ | 67.76 | |||||||||
Net income (loss) attributable to NHI shareholders — | 35.52 | 65.65 | 61.88 | (29.92 | ) | 66.20 | ||||||||||||||
Total NHI shareholders’ equity (2) | 748.32 | 790.70 | 810.31 | 794.69 | 873.26 | |||||||||||||||
Cash dividends (2) | 13.00 | 20.00 | 20.00 | 6.00 | 20.00 | |||||||||||||||
Cash dividends in USD (3) | $ | 0.12 | $ | 0.18 | $ | 0.19 | $ | 0.05 | $ | 0.19 | ||||||||||
Weighted average number of shares outstanding (in thousands) (4) | 3,600,701 | 3,560,776 | 3,474,593 | 3,359,565 | 3,202,370 | |||||||||||||||
Return on equity (5) : | 4.9 | % | 8.7 | % | 7.9 | % | (3.7 | %) | 8.2 | % | ||||||||||
B. Capitalization and Indebtedness.
Not applicable.
C. Reasons for the Offer and Use of Proceeds.
Not applicable.
D. Risk Factors.
Risk Factors
You should carefully consider the risks described below before making an investment decision. If any of the risks described below actually occurs, our business, financial condition, results of operations or cash flows could be adversely affected. In that event, the trading prices of our shares could decline, and you may lose all or part of your investment. In addition to the risks listed below, risks not currently known to us or that we now deem immaterial may also harm us and affect your investment.
INDEX
| · | Risks Relating to the Business Environment |
1 | Our business may be materially affected by financial markets, economic conditions and market fluctuations in Japan and elsewhere around the world |
| (1) | The COVID-19 pandemic has affected our business, clients and employees and this may continue in the future |
| (2) | Natural disaster, terrorism, military dispute and infectious disease other than COVID-19 could adversely affect our business |
| (3) | Governmental fiscal and monetary policy changes in Japan, or in any other country or region where we conduct business may affect our business, financial condition and results of operations |
| (4) | Transition from U.S. Dollar LIBOR to alternative rate indices may adversely affect our business |
| (5) | Extended market declines and decreases in market participants can reduce liquidity and lead to material losses |
| (6) | The consequences of Brexit may adversely affect our business on various fronts |
2 | The financial services industry faces intense competition |
| (1) | Competition with other financial firms and financial services by non-financial companies is increasing |
| (2) | Increased consolidation, business alliance and cooperation in the financial services industry mean increased competition for us |
| (3) | Our global business continues to face intense competition and may require further revisions to its business model |
3 | Event risk may cause losses in our trading and investment assets as well as market and liquidity risk |
4 | Environmental, Social and Governance (“ESG”) factors including climate change and broader associated policy changes in each jurisdiction could adversely affect our business |
| · | Risks Relating to Our Businesses |
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 |
| (2) | Holding large and concentrated positions of securities and other assets may expose us to large losses |
| (3) | Our hedging strategies may not prevent losses |
| (4) | Our risk management policies and procedures may not be fully effective in managing risk |
| (5) | Market risk may increase other risks that we face |
| (6) | Our brokerage and asset management revenues may decline |
3
| (7) | Our investment banking revenues may decline |
| (8) | Our electronic trading business revenues may decline |
6 | We may be exposed to losses when third parties do not perform their obligations to us |
| (1) | Defaults by a large financial institution could adversely affect the financial markets generally and us specifically |
| (2) | There can be no assurance as to the accuracy of the information about our credit risk, or the sufficiency of the collateral we use in managing it |
| (3) | Our clients and counterparties may be unable to perform their obligations to us as a result of political or economic conditions |
7 | We are a holding company and depend on payments from our subsidiaries |
8 | We may not be able to realize gains we expect, and may even suffer losses, on our investments in equity securities and non-trading debt securities |
9 | We may face an outflow of clients’ assets due to losses of cash reserve funds or debt securities we offer |
| · | Risks Relating to Our Financial Position |
10 | We may have to recognize impairment losses with regard to the amount of goodwill, tangible and intangible assets recognized on our consolidated balance sheets |
11 | Liquidity risk could impair our ability to fund operations and jeopardize our financial condition |
| (1) | We may be unable to access unsecured or secured funding |
| (2) | We may be unable to sell assets |
| (3) | Lowering of our credit ratings could impact our funding |
12 | Equity investments in affiliates and other investees accounted for under the equity method in our consolidated financial statements may decline significantly over a period of time and result in us incurring impairment losses |
| · | Risks Relating to Legal, Compliance and Other Operational Issues |
13 | Misconduct or fraud by an employee, director or officer, or any third party, could occur, and our reputation in the market and our relationships with clients could be harmed |
14 | A failure to identify and appropriately address conflicts of interest could adversely affect our business |
15 | Our business is subject to substantial legal, regulatory and reputational risks |
| (1) | Legal liability may occur due to events such as market downturn and could adversely affect our business, financial condition and results of operations |
| (2) | Extensive regulation of our businesses limits our activities and may subject us to significant penalties and losses |
| (3) | Tightening of regulations applicable to the financial system and financial industry could adversely affect our business, financial condition and results of operations |
| (4) | Deferred tax assets may be impacted due to a change in business condition or in laws and regulations, resulting in an adverse effect on our operating results and financial condition |
| (5) | Defects in our anti-money laundering and counter-terrorism financing measures could have serious consequences such as, administrative penalties or punitive fines. |
4
16 | Unauthorized disclosure or misuse of personal information held by us may adversely affect our business |
17 | System failure, information leakage and the cost of maintaining sufficient cybersecurity could adversely affect our business |
18 | Our business may be adversely affected if we are unable to hire, retain and develop qualified personnel |
| · | Risks Related to Holding or Trading of our Shares and ADSs |
19 | Because of daily price range limitations under Japanese stock exchange rules, you may not be able to sell your shares of the Company’s common stock at a particular price on any particular trading day, or at all |
20 | Under Japan’s unit share system, holders of the Company’s shares constituting less than one unit are subject to transfer, voting and other restrictions |
21 | As a holder of ADSs, you will have fewer rights than a shareholder has and you will have to act through the depositary to exercise these rights |
22 | Rights of shareholders under Japanese law may be more limited than under the laws of other jurisdictions |
23 | The Company’s shareholders of record on a record date may not receive the dividend they anticipate |
24 | It may not be possible for investors to secure personal jurisdiction within the U.S. over the Company or the Company’s directors or executive officers, or to enforce against the Company or those persons judgments obtained in U.S. courts predicated upon the civil liability provisions of the federal securities laws of the U.S. |
| · | Special Note Regarding Forward-looking Statements |
| · | Risks Relating to the Business Environment |
1. | Our business may be materially affected by financial markets, economic conditions and market fluctuations in Japan and elsewhere around the world |
Our business and revenues may be affected by any adverse changes or volatility in the Japanese and global economic environments and financial markets. In addition, not only purely economic factors but also future wars, acts of terrorism, economic or political sanctions, pandemics, forecasts of geopolitical risks and geopolitical events which have actually occurred, natural disasters or other similar events could have an effect on the financial markets and economies of each country. If any adverse events including those discussed above were to occur, a market or economic downturn may last for a long period of time, which could adversely affect our business and can result in us incurring substantial losses. In particular, global turmoil and economicaddition to conditions caused by the coronavirus(”COVID-19”)pandemic could continue to negatively affect Nomura’s business, even after the pandemic itself has subsided. It is highly uncertain and difficult to predict how critically our business continuity and revenue will be affected if this situation continues for an extended period. Furthermore,in financial markets, social conditions such as the long-term trends of population aging and population decline faced by Japan are expected to continue to put downward pressure on demand in the businesses in which we operate, including, in particular, our retailRetail business. Even in the absence of a prolonged market or economic downturn, changes in market volatility and other changes in the environment may adversely affect our business, financial condition and results of operations. The following are certain risks related to the financial markets and economic conditions for our specific businesses.
(1) The
COVID-19
pandemic has affected our business, clients and employees and this may continue in the futureThe
COVID-19
pandemic that began in 2020, and governmental measures to prevent its spread, have significantly affected the operating environment, for example causing volatility in global equity prices, interest rates and elsewhere and a widening of credit spreads. Government responses to the pandemic, such as lockdowns on buildings and cities, or curfews or other restrictions on movement in areas affected by the pandemic, continue5
to occur. In response to such measures, we have implemented robust arrangements for our employees to work remotely. However, these measures may not be successful or sufficient, and may cause additional risks, such as challenges in supervision over employees working remotely or increased risk of cyberattacks. Additionally, new strains or variants may arise, leading governments to impose new or additional restrictions which may impact societal and economic functions and adversely affect our business, results of operations and financial condition. While the spread or impact of the disease may gradually subside as vaccination efforts progress, ongoing negative effects on markets, economic activity or the operating environment could further adversely affect our business, results of operations and financial condition.
(2) Natural disaster, terrorism, military dispute and infectious disease other than
COVID-19
could adversely affect our businessWe have developed a contingency plan for addressing unexpected situations and conduct crisis management exercises including staff notification tests. We also developed a business resilience framework which includes an establishment of an emergency command center in the event of an actual disaster to account for the safety of our employees and their families. However, disaster, terrorism, military disputes or widespread infectious diseases afflicting our management and employees could exceed the assumptions of our plan and our framework, and could adversely affect our business. In addition, there is a possibility that unknown infectious diseases other than
COVID-19
pandemic may hinder the operational duties of our management and employees.(3) Governmental fiscal and monetary policy changes in Japan, or in any other country or region where we conduct business may affect our business, financial condition and results of operations
We engage in our business globally through domestic and international offices. Governmental fiscal, monetary and other policy changes in Japan, or in any other country or region where we conduct business may affect our business, financial condition and results of operations. In addition, any changes to the monetary policy of the Bank of Japan or central banks in major economies worldwide, which could potentially be followed by volatility of interest rate or yields may negatively affect our ability to provide asset management products to our clients as well as our and our clients’ trading and investment activities, as exemplifiedfor example by decreased returns for fixed income products in the prolonged low interest rate environment in Japan.
(4) Transition from U.S. Dollar LIBOR to alternative rate indices may adversely affect our business
TheCOVID-19pandemic has affected Nomura’s business, customers United Kingdom (“U.K.”) Financial Conduct Authority confirmed on March 5, 2021 that U.S. Dollar LIBOR settings will cease after June 30, 2023. All transaction agreements which refer to U.S. Dollar LIBOR and employees and this may continue in the future
(5) Extended market declines and decreases in market participants can reduce liquidity and lead to material losses
Extended market declines can reduce the level of market activity and the liquidity of the assets traded in those markets in which we operate. Market liquidity may also be affected by decreases in market participants that could occur, for example, if financial institutions scale back market-related businesses due to the ongoing turmoil including an extreme volatility in global equity prices, interest rates and elsewhere andincreasing regulation or other reasons. As a widening of credit spreads, as well as the possibility that uncertaintyresult, it may be difficult for us to sell, hedge or value such assets held. Also, in the economic outlookevent that a market fails in pricing such assets, it will continuebe difficult to estimate their value. If we cannot properly close out or hedge our associated positions in the future.a timely manner or in full, particularly with respect to
6
Over-The-Counter
(6) The consequences of Brexit may adversely affect our business on various fronts
On January 31, 2020, the United Kingdom (“U.K.”) withdrew from the European Union (“EU”) under the Withdrawal Agreement between the U.K. and the EU (“Brexit”), which provides forfollowed by a 12 month transition period during which the rules and regulations of the EU continued to apply to the U.K. up to December 31, 2020. Although the U.K. and EU entered a trade and cooperation agreement governing their new relationship, such agreement does not comprehensively address the financial industry, and there continues to be uncertainty as to the longer term consequences that Brexit may have on our business. Prior to Brexit, we conducted business in Europe primarily through Nomura International plc, our broker-dealer arm established in London, as our regional hub; but following the end of the transition period, we moved to a structure that provides client-facing services and other services centered on Nomura Financial Products Europe GmbH, our licensed broker-dealer in Germany. Although we have taken various measures to manage the risks associated with Brexit and to mitigate the impacts of uncertainty in the market as a whole, further developments including further adjustments to the operating boundaries between the U.K. and EU may adversely affect our business, results of operations and financial condition.
2. | The financial services industry faces intense competition |
(1) Competition with other financial firms and financial services by non-financial companies is increasing
Since the late 1990s, the financial services sector in Japan has undergone deregulation. Banks and certain other financial institutions became able to enter into the securities brokerage business in 2004 and firewalls between commercial banks and securities firms were deregulated in 2009, increasing the ability of securities firms with affiliated commercial banks to cooperate more closely them. As a result, securities subsidiaries of commercial banks and
non-Japanese
firms with increased competitiveness have been affecting our market shares in the sales and trading, investment banking and retail businesses. In recent years, competition has intensified beyond the traditional financial sector based on the increasing digitalization of the industry, not only with the rise of online securities firms but also FinTech companies and the entry ofnon-financial
companies into the financial services sector. In order to address such changes in the competitive landscape, we have already begun various efforts to these changes in the competitive environment. However, these measures may not be successful in growing or maintaining our market share in this increasingly fierce competitive environment, and we may lose business or transactions to our competitors, harming our business and results of operations.(2) Increased consolidation, business alliance and cooperation in the financial services industry mean increased competition for us
There has been substantial consolidation and convergence among companies in the financial services industry. In particular, a number of large commercial banks and other broad-based large financial services groups have established or acquired broker-dealers or have consolidated with other financial institutions. These large financial services groups have developed business linkage within their respective groups in order to provide comprehensive financial services to clients, offering a wide range of products, including loans, deposit-taking, insurance, brokerage, asset management and investment banking services within their group, which may enhance their competitive position compared with us. They also have the ability to supplement their investment banking and brokerage businesses with commercial banking and other financial services revenues in an effort to gain
7
non-financial
companies including (3) Our global business continues to face intense competition and may require further revisions to its business model
We continue to believe there are significant opportunities in the European region.
international markets, but there is also significant competition associated with such opportunities. In order to addresstake advantage of these opportunities, we will have to compete successfully with financial services firms based in importantconsequencesU.S., Europe and Asia. Despite our efforts facing competition, we recognized an impairment loss on goodwill attributable to previous overseas acquisitions of Brexit, we established a broker-dealer entity, Nomura Financial Products Europe GmbH (“NFPE”) as a licensed broker-dealer¥81,372 million in the Federal Republicfiscal year ended March 31, 2019. Since April 2019, we have been working to rebuild our global business platform, under which we aim to transform our business portfolio and pivot towards client businesses and growth areas, which we believe has been successful. In order to support further development of Germany. As a German entity, NFPEour international operations, Nomura continues to grow its business organically and inorganically such as acquisition of Greentech Capital Advisors in 2020. We will continue to hold passporting rights even ifreview our entire business portfolio while looking at the transition period ends with no agreement.competitive environment, and intend to implement our strategies in consideration of potential risks. However, potential risks are associated with timely migration of European clients to NFPE and ability to provide the same level of service as the NIP entity. In addition as discussed below, a number of uncertainties affecting our business in the European region remain.
non-Japanese
markets, including the 3. | Event risk may cause losses in our trading and investment assets as well as market and liquidity risk |
Event risk refers to potential developmentslosses we may suffer through unpredictable events that cause large unexpected market price movements such as risingnatural or
man-made
disasters, epidemics, acts of terrorism, armed conflicts or political instability, as well as adverse events specifically affecting our business activities or counterparties. These events include not only significant events such as the Great East Japan Earthquake in March 2011, the increasing tensions on Korean Peninsula following North Korean nuclear tests in 2017, sudden and unexpected developments in global trade or security policies such as tensions between the United States and China since 2018, theCOVID-19
pandemic in 2020, and the invasion of Ukraine by the Russian Federation in 2022, but also more specifically the following types of events that could cause losses in our trading and investment assets:sudden and significant reductions in credit ratings with regard to financial instruments held by our trading and investment businesses by major rating agencies,
sudden changes in trading, tax, accounting, regulatory requirements, laws and other related rules which may add further downward pressuremake our trading strategy obsolete, less competitive or no longer viable, or
an unexpected failure in a corporate transaction in which we participate resulting in our not receiving the consideration we should have received, as well as bankruptcy, deliberate acts of fraud, and administrative penalty with respect to the world economic growthissuers of our trading and global financial stabilityinvestment assets.
4. | Environmental, Social and Governance (“ESG”) factors including climate change and broader associated policy changes in each jurisdiction could adversely affect our business |
8
position ourselves in a positive light to interested stakeholders including our shareholders, clients and associety at large. Amid rapidly changing circumstances around ESG, lack of sufficient focus on ESG considerations may not only impede our ability to build a result, wesustainable business model, but may see lower liquidity in financial markets, an unexpected increase in volatility across various asset classes, higher funding costs, a trend towards increasing risk averseness in investment activities and negative business sentiment, all of which mayalso adversely affect our business.
low-carbon
economy, and could result from changing government policies, technologies or changes to consumer demand.| · | Risks Relating to Our Businesses |
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
We maintain trading and investment positions in fixed income, equity and other markets, both for proprietary purposes and for the purpose of facilitating our clients’ trades. Our positions consist of various types of assets, including securities, derivatives transactions with equity, interest rate, currency, credit and other underliers, as well as loans, and reverse repurchase agreements. Fluctuations in the markets where these assets are traded can adversely affect the value of our positions, in these assets, with downturns potentially negatively affecting long positions and upturns potentially negatively affecting short positions. Although we continue to
mitigate these position risks with a variety of hedging techniques, we may also incur losses if the value of these assets fluctuatefluctuates or if the financial system is overly stressed and the markets move in a way we have not anticipated.
Our businesses have been, and may continue to be, affected by changes in market volatility levels. Certain of our trading businesses such as those engaged in trading and arbitrage opportunities depend on market volatility to generate revenues. Lower volatility may lead to a decrease in business opportunities which may affect the results of operations of these businesses. On the other hand, while higher volatility can increase trading volumes and spreads, it also increases risk as measured by(“VaR”) and may expose us to higher risks in connection with our market-making and proprietary businesses. Higher volatility can also cause us to reduce the outstanding positions or size of these businesses in order to avoid increasing our VaR.
Value-at-Risk
For example, in March 2021, following the default of a U.S. prime brokerage client in respect of a margin call, we issued a” for further information on the nature of this event. 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.
close-out
event notice to such client, and proceeded to wind down positions held as hedges for transactions with the client, leading us to recognize significant trading losses on the unwinding of the underlying positions and a provision for expected credit losses to reflect a shortfall in the value of securities pledged by the client as collateral against financing provided to it. We refer to this event and the losses caused as the “U.S. Prime Brokerage Event.” See Item 11. “Quantitative and Qualitative Disclosures about Market, Credit and Other Risk
Furthermore, we commit capital to take relatively large positions for underwriting or warehousing assets to facilitate certain capital market transactions. We also structure and take positions in pilot funds for developing financial investment products and invest seed money to set up and support financial investment products. We may incur significant losses from these positions in the event of significant market fluctuations.
9
In addition, if we are the party providing collateral in a transaction, significant declines in the value of the collateral or a requirement to provide additional collateral due to a decline in our creditworthiness (by way of a lowered credit rating or otherwise) can increase our costs and reduce our profitability. On the other hand, if we are the party receiving collateral from our clients and counterparties, such declines may also affect our profitability due to decrease in client transactions. Assuming aFollowing the U.S. Prime Brokerage Event, multiple ratings agencies downgraded their outlook with regards to our ratings, which, if not resolved positively, may lead to downgrades in our ratings. See also “one-notch
”.—Risks Relating to Our Financial Position—Liquidity risk could impair our ability to fund operations andtwo-notchdowngrade jeopardize our financial condition—(3) Lowering of our credit ratings on March 31, 2020, absent other changes, we estimate that the aggregate fair value of assets required to be posted as additional collateral in connection withcould impact our derivative contracts would have been approximately ¥5.5 billion and ¥64.3 billion, respectively.funding
(2) Holding large and concentrated positions of securities and other assets may expose us to large losses
Quantitative and Qualitative Disclosures about Market, Credit and Other Risk
(3) Our hedging strategies may not prevent losses
We use a variety of financial instruments and strategies to hedge our exposure to various types of risk.financial risks arising from the financial instruments we enter into for proprietary purposes or for our clients. If our hedging strategies are not effective, we may incur losses. We base many of our hedging strategies on historical trading patterns and correlations. For example, if we hold an asset, we may hedge this position by taking a position in another asset which has, historically, moved in a direction that would offset a change in value of the former asset. However, historical trading patterns and correlations may not continue, as seen in the case of past financial crises, and these hedging strategies may not be fully effective in mitigating our risk exposure because we are exposed to all types of risk in a variety of market environments. Moreover, not all hedging strategies are effective against all kinds of risk, and certain strategies may, if the risk is not otherwise appropriately managed, increase our risk. For example, many of the transactions leading to the U.S. Prime Brokerage Event entailed providing the client with “total return swap” derivative exposure to certain equities. See Item 11. “” for further information on the nature of this event. In order to hedge the “total return” payments we were obligated to make to the client, we held cash positions in the underlying equities. However, this specific hedging strategy was not intended to hedge the risk of a default by the client and the potential need to liquidate the underlying positions in a volatile market environment. When such risk was realized, our hedging strategy of holding the underlying securities meant that we were exposed to such market fluctuations, contributing to the losses we recognized.
Quantitative and Qualitative Disclosures about Market, Credit and Other Risk
(4) Our risk management policies and procedures may not be fully effective in managing market riskrisks
Our policies and procedures to identify, monitor and manage risks may not be fully effective. Although some of our methods of managing risk are based upon observed historical market data, the future movements in the financial markets may not be the same as was observed in the past. As a result, we may suffer large losses through unexpected future risk exposures. Other risk management methods that we use also rely on our
10
evaluation of information regarding markets, clients or other matters, which is publicly available or otherwise accessible by us. This information may not be accurate, complete,or properly evaluated, and we may be unable to properly assess our risks, and thereby suffer large losses. Furthermore, certain factors, such as market volatility, may render our risk evaluation model unsuitable for a new market environment. In such event, we may become unable to evaluate or otherwise manage our risks adequately. Moreover, regardless of how well policies and procedures are designed, they must be properly implemented and followed in order to be effective, which may not always occur despite our diligent efforts. Further, potential weaknesses in our organization structures and governance frameworks may lead to misunderstanding over roles and responsibilities.
up-to-date
For example, with respect to the U.S. Prime Brokerage Event, we suffered significant losses through exposures to the client’s counterparty risk and market risks relating to the securities underlying the prime brokerage transactions with the client. We have reviewed and are in the process of completing a number of actions to comprehensively review, revise and strengthen our risk management policies and procedures and the implementation thereof. See Item 11. “8
Quantitative and Qualitative Disclosures about Market, Credit and Other Risk
” for further information on the nature and status of these review procedures. Such actions remain ongoing, however, and when completed, may not be sufficient to prevent similar exposure to such risks in the future, including to identify and rectify potential shortcomings, whether within the same business or among our many other business units, impairing the ability of such policies and procedures to prevent future losses.(5) Market risk may increase other risks that we face
In addition to the potentially adverse effects on our businesses described above, market risk could exacerbate other risks that we face. For example, the risks inherent in financial instruments developed through financial engineering and innovation may be increased by market risk.
Also, if we incur substantial trading losses caused by our exposure to market risk, our need for liquidity could rise sharply while our access to cash may be impaired as a result of market perception of our credit risk.
Furthermore, in a downturn in the market downturn,overall or for specific securities, our clients and counterparties could incur substantial losses or experience other adverse events of their own, thereby weakening their financial condition and, as a result, increasing ourthe credit risk they pose to them.us, such as occurred as part of the U.S. Prime Brokerage Event.
A market downturn could result in a decline in the revenues generated by our brokerage business because of a decline in the volume and value of securities that we broker for our clients. Also, within our asset management and investment management business, in most cases, we charge fees for managing our clients’ portfolios that are based on the market value of their portfolios. A market downturn that reduces the market value of our clients’ portfolios may increase the amount of goodwill, tangible and intangible assets recognized on our consolidated balance sheets
(7) Our investment banking revenues may decline
Changes in financial or economic conditions would likely affect the number and size of transactions for which we provide securities underwriting, financial advisory and other investment banking services. Our investment banking revenues, which include fees from these services, are directly related to the number and size of the transactions in which we participate and would therefore decrease if recognized, suchthere are financial and market changes may adversely affectunfavorable to our financial conditioninvestment banking business and results of operations. our clients.
For example, net revenue from our investment banking activities declined during the year ended March 31, 2020 compared to the year ended March 31, 2019 we recognized an impairment loss on goodwill in our Wholesale segment attributable to previous overseas acquisitions of ¥81,372 million.
11
COVID-19
pandemic. While our investment banking net revenues have increased during the years ended March 31, 2021 and 2022, M&A activities and other investment banking activities are expected to on-line
content and tools to our bid-offer
spreads is directly correlated with the number and size of no-commission
trades at competitors has and will continue to exert pressure on our electronic and traditional trading revenue. Moreover, such revenue would decrease if there are financial market or economic changes that would cause our clients to trade less frequently or in a smaller amounts. Even if trade volumes increase due to the convenience of electronic trading, this may not be sufficient to offset margin erosion in our maximize returns on these investments due to this increased pressure on lowering margins.
6. | We may be exposed to losses when third parties do not perform their obligations to us |
Our counterparties are from time to time indebted or otherwise owe certain obligations (such as with regards to the posting of collateral) to us as a result of transactions or contracts, including loans, commitments to lend, other contingent liabilities and derivative transactions. We may incur material losses when our counterparties default or fail to perform on their obligations to us due to their filing for bankruptcy, a deterioration in their creditworthiness, lack of liquidity, operational failure, an economic or political event, repudiation of the transaction or for other reasons. In particular,The U.S. Prime Brokerage Event, during which a U.S. prime brokerage client defaulted on obligations to us to post additional margin in respect of trading activities as well as to repay amounts lent against collateral held by us, is an example. See Item 11. “” for further information on the effectsnature of theCOVID-19pandemic, or governmental responses thereto, are felt, we may see an increase in defaults by counterparties.this event. Although we establish and maintain allowances for credit losses, such allowances reflect management judgments and assumptions based on information available to them. For example, our allowances as of March 31, 2020 reflect
Quantitative and Qualitative Disclosures about Market, Credit and Other Risk
Credit risk may also arise from:
holding securities issued by third parties, or
the execution of securities, futures, currency or derivative transactions that fail to settle at the required time due to nondelivery which are counterpartiesor to credit default swaps or systems failure by clearing agents, exchanges, clearing houses or other financial infrastructure.
non-delivery
by the counterparty of Nomura, such as financial institutions and hedge funds, Issues related to third party credit risk may include the following:
(1) Defaults by a large financial institution could adversely affect the financial markets generally and us specifically
The commercial soundness of many financial institutions is closely interrelated as a result of credit, trading, clearing or other relationships among the institutions. As a result, concern about the creditworthiness of or a default by, a certain financial institution could lead to significant liquidity problems or losses in, or defaults by, other financial institutions. This may adversely affect financial intermediaries, such as clearing agencies, clearing houses, banks, securities firms and exchanges, with which we interact on a daily basis. Actual defaults, increases in perceived default risk and other similar events could arise in the future and could have an adverse effect on the financial markets and on us. Our funding operations may be adversely affected if major financial institutions, Japanese or otherwise, fail or experience severe liquidity or solvency problems.
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(2) There can be no assurance as to the accuracy of the information about our credit risk, or the sufficiency of the collateral we use in managing our credit riskit
We regularly review our credit exposure to specific clients or counterparties and to specific countries and regions that we believe may present credit concerns. Default risk, however, may arise from events or circumstances that are difficult towe do not detect, such as account-rigging and fraud. We may also fail to receive full information with respect to the risks of a counterparty.counterparty, or to accurately manage and assess such information internally. For example, our credit risk assessments with respect to the client whose default led to the U.S. Prime Brokerage Event did not reflect the full extent of the client’s relevant trading activity. In addition, in cases where we have extended credit against collateral, we may fall into a deficiency in value in the collateral if sudden declines in market values reduce the value of our collateral.collateral, as was the case with loans extended to the prime brokerage client leading in part to the U.S. Prime Brokerage Event. See Item 11. “” for further information on the nature of this event.
Quantitative and Qualitative Disclosures about Market, Credit and Other Risk
(3) Our clients and counterparties may be unable to perform their obligations to us as a result of political or economic conditions
Country, regional and political risks are components of credit risk, as well as market risk. Political or economic pressures in a country or region, including those arising from local market disruptions or currency crises, may adversely affect the ability of clients or counterparties located in that country or region to obtain credit or foreign exchange, and therefore to perform their obligations owed to us.
7. | We are a holding company and depend on payments from our subsidiaries |
We are a holding company and Governanceheavily depend on dividends, distributions and other payments from our subsidiaries to make payments on our obligations. Regulatory and other legal restrictions, such as those under the Companies Act, may limit our ability to transfer funds freely, either to or from our subsidiaries. In particular, many of our subsidiaries, including our broker-dealer subsidiaries, are subject to laws and regulations, including regulatory capital requirements, that authorize regulatory bodies to block or reduce the flow of funds to the parent holding company, or that prohibit such transfers altogether in certain circumstances. For example, Nomura Securities Co., Ltd. (“ESG”NSC”) factors including Climate change, Nomura Securities International, Inc., Nomura International plc and broader associated policyNomura International (Hong Kong) Limited, our main broker-dealer subsidiaries, are subject to regulatory capital requirements and changes in each jurisdiction could adversely affect our business
8. | We may not be able to realize gains we expect, and may even suffer losses, on our investments in equity securities and non-trading debt securities |
We hold substantial investments in equity securities subsidiaries,including private equity investments andnon-Japanesenon-tradingfirmsdebt securities. Under U.S. GAAP, depending on market conditions, we may recognize significant unrealized gains or losses on our investments in equity securities and onlinedebt securities, firmswhich could have an adverse impact on our financial condition and results of operations. For example, in the Japanesefiscal year ended March 31, 2020, we recognized a loss of ¥16.4 billion related to our investment in American Century Investments and ¥16.6 billion on our investments in equity securities resulting from market is increasingdeclines arising from the
COVID-19
9. | We may face an outflow of clients’ assets due to losses of cash reserve funds or debt securities we offer |
Cash reserve funds, such as money market funds and firewalls between commercial banks and securities firms were deregulated in 2009, increasing the ability of securities firms with affiliated commercial banks to cooperate more closely them.money reserve funds are categorized as low risk financial products. As a result securities subsidiaries of commercial banks andnon-Japanesefirms with increased competitiveness have been affecting our market shares in the sales and trading, investment banking and retail businesses. In recent years, the rise of online securities firms has further intensified the competition. In order to address such changes in the competitive landscape, we have taken certain measures, including the establishment of a business alliance with a social networking and messaging service provider. However, these measuressudden rise in interest rates, such cash reserve funds may not be successful in growing or maintaining our market share in this increasingly fierce competitive environment, and we may lose business or transactions to our competitors, harming our business and results of operations.fall below par value
In addition, debt securities that we offer may default or experience delays in the payment of interest and/or principal.
These events above may result in the loss of client confidence and lead to an outflow of client assets from our custody or preclude us from increasing such client assets.
| · | Risks Relating to Our Financial Position |
10. | We may have to recognize impairment losses with regard to the amount of goodwill, tangible and intangible assets recognized on our consolidated balance sheets |
We have purchased all or a part of the equity interests in, or operations from, certain other companies in order to pursue our business expansion, and expect to continue to do so when and as we deem appropriate. We account for certain of those and similar purchases and acquisitions as a business combination under U.S. GAAP by allocating our acquisition costs to the assets acquired and liabilities assumed and recognizing the remaining amount as goodwill. On April 1, 2020, Nomura acquired 100% of Greentech Capital, LLC (“Greentech”) and goodwill of ¥12,480 million is reported on our consolidated balance sheet. We also possess tangible and intangible assets other than those stated above.
We may have to recognize impairment losses, as well as other losses associated with subsequent transactions, with regard to the amount of goodwill, tangible and intangible assets and, recognized on our consolidated group balance sheet which may adversely affect our financial condition and results of operations. For example, during the year ended March 31, 2019, we recognized an impairment loss on goodwill in our Wholesale segment attributable to previous overseas acquisitions of ¥81,372 million.
11. | Liquidity risk could impair our ability to fund operations and jeopardize our financial condition |
Liquidity, or having ready access to cash, is essential to our business. 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 our creditworthiness or deterioration in market conditions. In addition to maintaining a readily available cash position, we seek to secure ample liquidity through repurchase agreements and securities lending transactions, long-term borrowings and the issuance of long-term debt securities, diversification of our short-term funding sources such as commercial paper, and by holding a portfolio of highly liquid assets. We bear the risk that we may lose liquidity under certain circumstances, including the following:
(1) We may be ableunable to successfully rebuild themaccess unsecured or secured funding
We continue to believe there are significant opportunitiescontinuously access unsecured funding from issuance of securities in the internationalshort-term credit markets butand debt capital markets as well as bank borrowings to finance ouroperations, including refinancing. We also enter into repurchase agreements and securities lending transactions to raise secured funding for our trading businesses. An inability to access unsecured or secured funding or funding at significantly higher cost than normal levels could have a substantial negative effect on our liquidity. For example, lenders could refuse to extend the credit necessary for us to conduct our business based on their assessment of our long-term or short-term financial prospects if:
day-to-day
We incur large trading losses,
The level of our business activity decreases due to a market downturn,
Regulatory authorities take significant action against us, or
Our credit rating is downgraded.
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In addition to the above, our ability to borrow in the debt capital markets could also be adversely impacted by factors that are not specific to us, such as increases in market interest rates, reductions in banks’ lending capacity, a severe disruption of the financial and credit markets, negative views about the general prospects for the investment banking, brokerage or financial services industries, or negative market perceptions of Japan’s financial soundness.
(2) We may be unable to sell assets
If we are unable to raise funds or if our liquidity declines significantly, we will need to liquidate assets or take other actions in order to meet our maturing liabilities. In volatile or uncertain market environments, overall market liquidity may decline. In a time of reduced market liquidity, we may be unable to sell some of our assets, or we may have to sell at depressed prices, which could adversely affect our results of operations and financial condition. Our ability to sell assets may also be adversely impacted by other market participants seeking to sell similar assets into the market at the same time.
(3) Lowering of our credit ratings could impact our funding
Our funding depends significantly on our credit ratings. Rating agencies may reduce or withdraw their ratings or place us on “credit watch” with negative implications. For example, following the U.S. Prime Brokerage Event, in March 2021, Fitch Ratings, Inc. placed our credit ratings on negative watch and Moody’s Investors Service, Inc. changed the outlook on our credit ratings to negative, which may lead either agency to downgrade our credit ratings in the future. See Item 11. “” for further information on the nature of this event. Future downgrades could increase our funding costs and limit our funding. This, in turn, could adversely affect our result of operations and our financial condition. In addition, other factors which are not specific to us may impact our funding, such as negative market perceptions of Japan’s financial soundness.
Quantitative and Qualitative Disclosures about Market, Credit and Other Risk
12. | Equity investments in affiliates and other investees accounted for under the equity method in our consolidated financial statements may decline significantly over a period of time and result in us incurring impairment losses |
We have affiliates and investees accounted for under the equity method in our consolidated financial statements and whose shares are publicly traded. If there is also significant competition associated with such opportunities. In order to take advantage of these opportunities, we will have to compete successfully with financial services firms based in importantnon-Japanesemarkets, including the U.S., Europe and Asia. For example, as a means to bolster our international operations, we acquired certain Lehman Brothers operations in Europe, the Middle East and Asia in 2008 After the acquisition, however, market structures have changed drastically due to the scaling back of market-related businesses by European financial institutions and the monetary easing policies by European central banks, resulting in decline in wholethe market liquidity. Althoughprice, of the shares we endeavored to reallocatehold in such affiliates over a period of time, and we determine that the decline is other-than-temporary, then we recognize an impairment loss for the applicable fiscal period which may have an adverse effect on our management resources to optimize our global operationsfinancial condition and thereby improve our profitability, due in part to the challenging environment facing these businesses,results of operations. For example, we recognized an impairment loss of ¥81,372¥47,661 million against its investment in Nomura Real Estate Holdings, Inc. during the fiscal year ended March 31, 2019.
| · | Risks Relating to Legal, Compliance and Other Operational Issues |
13. | Misconduct or fraud by an employee, director or officer, or any third party, could occur, and our reputation in the market and our relationships with clients could be harmed |
We always face the risk that our employees, directors or officers, or any third party, could engage in misconduct that may adversely affect our business. Misconduct by an employee, director or officer includes conduct such as entering into transactions in excess of authorized limits, acceptance of risks that exceed our limits, or concealment of unauthorized or unsuccessful activities. The misconduct could also involve the improper use or disclosure of, such as insider trading improper transmission of such information and the recommendation of trades based on such information, as well as other crimes, which could result in regulatory sanctions, legal liability and serious reputational or financial damage to us.
non-public
information relating to us or our clients, 15
For example, on March 5, 2019, a researcher at Nomura Research Institute, Ltd. (“NRI”), our equity-method affiliate, revealed information that there was a high possibility that the standard for designating the top market of the Tokyo Stock Exchange (the “TSE”) would fall to ¥25 billion, which had been under review at the TSE, to a chief strategist (the “NSC Strategist”) in the research division of Nomura Securities Co., Ltd. (“NSC”).NSC. The researcher at NRI was a member of the Advisory Group to Review the TSE Equity Market Structure and received this information in such capacity. On the same day and the next day, the NSC Strategist communicated the information to certain people including members of Japanese stock sales team of NSC and Nomura International (Hong Kong) Limited, some of whom provided the information to their institutional investor clients. Although the provision of the information did not represent a violation of law, they were inappropriate conducts and impaired the implicit trust placed in us and our employees by other market participants. Following a special internal investigation conducted by external experts, on May 24, 2019, we announced a remediation plan and the reduction of compensation of certain of our executives and those of NSC. On May 28, 2019, the FSA issued a business improvement order to us and to NSC, requiring us to clarify responsibility for this
incident, develop and submit a detailed improvement plan, and report periodically on the implementation and effectiveness of measures for improvement, and on August 28, 2019, a fine of ¥10 million was imposed by Tokyo Stock Exchange, Inc. as a penalty.
Third parties may also engage in fraudulent activities, including devising a fraudulent scheme to induce our investment, loans, guarantee or any other form of financial commitment, both direct and indirect. Because of the broad range of businesses that we engage in and the large number of third parties with whom we deal in ourbusiness operations, such fraud or any other misconduct may be difficult to prevent or detect.detect, and our future reputation and financial condition could be adversely affected, which could result in serious reputational or financial damage to us in the future.
day-to-day
14. | A failure to identify and appropriately address conflicts of interest could adversely affect our business |
We are a global financial institution that provides a wide range of products and services to a diverse group of clients, including individuals, corporations, other financial institutions and governmental institutions. As such, we face potential conflicts of interest in the ordinary course of our business. Conflicts of interests can arise when our services to a particular client conflict or compete, or are perceived to conflict or compete, with our own interests. In addition, whereWhile we have extensive internal procedures and controls designed to identify and address conflicts of interest on the basis of the Nomura Group Conflicts of Interest Management Policy, aA failure, or a perceived failure, to identify, disclose and appropriately address such conflicts could adversely affect our reputation, and the willingness of current or potential clients to do business with us.us and our revenues and results of operations. In addition, conflicts of interest could give rise to regulatory actions or litigation.
non-public
information is not appropriately restricted or shared within the firm, conflicts of interest can also arise where a transaction within the Nomura Group and or a transaction with another client conflict or compete, or is perceived to conflict or compete, with a transaction with a particular client. 15. | Our business is subject to substantial legal, regulatory and reputational risks |
Substantial legal liability or a significant regulatory action against us could have a material financialadverse effect on usour business, financial condition or results of operations, or cause reputational harm to us, which in turn could adversely affect our business prospects, financial condition and results of operations.us. Also, material changes in regulations applicable to us or to the markets in which we operate could adversely affect our business. See Note 2120in our consolidated financial statements included in this annual report for further information regarding the significant investigations, lawsuits and other legal proceedings that we are currently facing.
“Commitments, contingencies and guarantees”
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We face significant legal risks in our businesses. These risks include liability under securities or other laws in connection with securities underwriting and offering transactions, liability arising from the purchase or sale of any securities or other financial products, disputes over the terms and conditions of complex trading arrangements or the validity of contracts for our transactions, disputes with our business alliance partners and legal claims concerning our other businesses.
(1) Legal liability may occur due to events such as market downturn and could adversely affect our business, financial condition and results of operations
During a prolonged market downturn or upon the occurrence of an event that adversely affects the market, we would expect claims against us to increase. We may also face significant litigation. The cost of defending such litigation may be substantial and our involvement in litigation may damage our reputation. For example, during the fiscal year ended March 2022, approximately ¥62.0 billion related to legacy transactions in the U.S. from before the global financial crisis (2007 – 2008) was recognized including legal expenses as well as certain transactions intended to mitigate future losses. In addition, even legal transactions might be subject to adverse public reaction according to the particular details of such transactions. These risks may be difficult to assess or quantify and their existence and magnitude may remain unknown for substantial periods of time.
(2) Extensive regulation of our businesses limits our activities and may subject us to significant penalties and losses
The financial services industry is subject to extensive regulation. We are subject to increasing regulation by governmental and self-regulatory organizations in Japan and in virtually all other jurisdictions in which we operate, and such governmental and regulatory scrutiny may increase as our operations expand or as laws change. In addition, while regulatory complexities increase, possibilities of extra-territorial application of a regulation in one jurisdiction to business activities outside of such jurisdiction may also increase. These regulations are broadly designed to ensure the stability of financial systems and the integrity of the financial markets and financial institutions, and to protect clients and other third parties who deal with us, and often limit our activities and/or affect our profitability, through net capital, client protection and market conduct requirements. In addition, on top of traditional finance-related legislation, the scope of laws and regulations applying to, and/or impacting on, our operations may become wider depending on the situation of the wider international political and economic environment or policy approaches taken by governmental authorities in respect of regulatory application or law enforcement. In particular, the number of investigations and proceedings against the financial services industry by governmental and self-regulatory organizations has increased substantially and the consequences of such investigations and proceedings have become more severe in recent years, and we are subject to face the risk of such investigations and proceedings. For example, the U.S. Department of Justice (the “DOJ”) conducted an investigation regarding residential mortgage-backed securities securitized by some of our U.S. subsidiaries prior to 2009. On October 15, 2018, the U.S. subsidiaries settled the investigation with the DOJ and agreed to pay USD 480$480 million. Although we have policies in place to prevent violations of such laws and regulations, weWe may not always be able to prevent such violations, and we could be fined, prohibited from engaging in some of our business activities, ordered to improve our internal governance procedures or be subject to revocation of our license to conduct business. Our reputation could also suffer from the adverse publicity that any administrative or judicial sanction against us may create, which may negatively affect our business opportunities and ability to secure human resources. As a result of any such sanction, we may lose business opportunities for a period of time, even after the sanction is lifted, if and to the extent that our clients, especially public institutions, decide not to engage us for their financial transactions. In addition, certain market participants may refrain from investing in or entering into transactions with us if we engage in business activities in regions subject to international sanctions, even if our activities do not constitute violations of sanctions laws and regulations.
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(3) Tightening of regulations applicable to the financial system and financial industry could adversely affect our business, financial condition and results of operations
If regulations that apply to our businesses are introduced, modified or removed, we could be adversely affected directly or through resulting changes in market conditions. The impact of such developments could make it economically unreasonable for us to continue to conduct all or certain of our businesses, or could cause us to incur significant costs to adjust to such changes.
Furthermore, the exact details of the implementation of proposals for regulatory change and its impact on us will depend on the final regulations as they become ultimately adopted by various governmental agencies and oversight boards. See Item 4.B “” in this annual report for more information about such regulations.
Business Overview—Overview
—
Regulation
New regulations or revisions to existing regulations relating to accounting standards, regulatory capital adequacy ratios, liquidity ratios and leverage ratios applicable to us could also have a material adverse effect on our business, financial condition and results of operations. Such new regulations or revisions to existing regulations include thewill beis subject to the TLAC requirements in Japan from March 31, 2021 although Nomura is not identified as a
so-called
Basel III package formulated by the Basel Committee on Banking Supervision (“Basel Committee”) and the finalized Basel III reforms published in December 2017. Furthermore, in October 2012, the Basel Committee developed and published a set of principles on the assessment methodology and higher loss absorbency requirements for domestic systemically important banks(“D-SIBs”),
and, in December 2015, the FSA identified us as aD-SIB
and imposed a surcharge of 0.5% on our required capital ratio after March 2016 with3-year
transitional arrangement. In addition, FSB published the final standard requiring global systemically important banks(“G-SIBs”)
to maintain a certain level of total loss-absorbing capacity (“TLAC”) upon their failure in November 2015. Under the FSA’s policy implementing the TLAC framework in Japan as updated in April 2018, the TLAC requirements in Japan apply not only to JapaneseG-SIBs
but also to JapaneseD-SIBs
that are deemed (i) of particular need for a cross-border resolution arrangement and (ii) of particular systemic significance to Japanese financial system if they fail. Based on the revised policy, in March 2019, the FSA published the notices and guidelines of TLAC regulations in Japan. According to these notices and guidelines, Nomura G-SIB
as of the date of this annual report. These changes in regulations may increase our funding costs or require us to liquidate financial instruments and other assets, raise additional capital or otherwise restrict our business activities in a manner that could adversely affect our operating or financing activities or the interests of our shareholders.(4) Deferred tax assets may be impacted due to a change in business condition or in laws and regulations, resulting in an adverse effect on our operating results and financial condition
We recognize deferred tax assets in our consolidated balance sheets as a possible benefit of tax relief in the future. If we experience or forecast future operating losses, if tax laws or enacted tax rates in the relevant tax jurisdictions in which we operate change, or if there is a change in accounting standards in the future, we may reduce the deferred tax assets recognized in our consolidated balance sheets. As a result, it could adversely affect our financial condition and results of operations. See Note 1615in our consolidated financial statements included in this annual report for further information regarding the deferred tax assets that we currently recognize.
“Income taxes”
(5) Defects in our anti-money laundering and counter-terrorism financing measures could have serious consequences such as, administrative penalties or punitive fines.
In recent years, financial crimes have become more sophisticated, complex, and diverse. As the world faces growing threats of war, terrorism, and cyberattacks, it is highly important to counter the financing of crimes and terrorism. Financial institutions around the world are expected to take strong measures to combat money laundering and terrorist financing. Despite our efforts to improve our anti-money laundering and counter-terrorism financing measures, which we have implemented consistently across Nomura Group in accordance
18
with the Recommendations provided by the Financial Action Task Force (FATF) and the FSA’s “Guidelines on Anti-Money Laundering and Terrorist Financing”, there remains a risk that such measures will not be fully effective in preventing or detecting all violations in a timely manner. As a consequence, we could be subject to administrative penalties or punitive fines. See “” for further information regarding regulatory actions and other legal proceedings as well as consequences thereof.
15.Our business is subject to substantial legal, regulatory and reputational risks—(2) Extensive regulation of our businesses limits our activities and may subject us to significant penalties and losses
16. | Unauthorized disclosure or misuse of personal information held by us may adversely affect our business |
We keep and manage personal information obtained from clients in connection with our business. In recent years, there have been many reported cases of personal information and records in the possession of corporations and institutions being improperly accessed disclosed or misused.
Although we exercise care to protect the confidentiality of personal information and have in place policies and procedures designed to safeguard such information and ensure that it is used in compliance with applicable laws, rules and regulations, were any unauthorized disclosure or misuse of personal information to occur, our business could be adversely affected. For example, we could be subject to government actions such as administrative actions or penalties in case there is any violation of applicable personal data protection laws, rules and regulations or be subject to complaints and lawsuits for damages from clients if they are adversely affected due to the unauthorized disclosure or misuse of their personal information (including leakage of such information by an external service provider). In addition, we could incur additional expenses associated with changing our security systems, either voluntarily or in response to administrative guidance or other regulatory initiatives. Moreover, restrictions on our ability to use personal information collected from clients may adversely affect our existing businesses or to develop new ones. Furthermore, any damage to our reputation caused by such unauthorized disclosure or misuse could lead to a decline in new clients and/or a loss of existing clients, as well as to increased costs and expenses incurred for public relations campaigns designed to prevent or mitigate damage to our corporate or brand image or reputation.
17. | System failure, the information leakage and the cost of maintaining sufficient cybersecurity could adversely affect our business |
Our businesses rely on secure processing, storage, transmission and reception of personal, confidential and proprietary information on our systems. We have been in the past and may again become the target of attempted unauthorized access, computer viruses or malware, and other cyber-attacks designed to access and obtain information on our systems or to disrupt and cause other damage to our services. For example, in June 2018, one of our foreign subsidiaries experienced a spear phishing incident that resulted in the unauthorized access to the firm’s desktop network, requiring us to immediately launch an internal investigation to assess and remediate the incident, notify the appropriate authorities of its occurrence and communicate with clients and other individuals whose data may have been impacted. In response to the
COVID-19
pandemic, many of our employees now work remotely using networking or other technologies, and these technologies have become even more critical to our business. The implementation of remote work arrangements may also increase the possibility that we will be subject to cyber-attacks and other information security breaches. Although these threats may originate from human error or technological failure, they may also originate from the malice or fraud of internal parties, such as employees, or third parties, including foreignnon-state
actors and extremist parties. Additionally, we could also be adversely impacted if any of the third-party vendors, exchanges, clearing houses or other financial institutions to whom we are interconnected are subject to cyber-attacks or other informational security breaches. Such events could cause interruptions to our systems, reputational damage, client dissatisfaction, legal liability, enforcement actions or additional costs, any and all of which could adversely affect our financial condition and operations.While we continue to devote significant resources to monitor and update our systems and implement information security measures to protect our systems, there can be no assurance that any controls and procedures
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we have in place will be sufficient to protect us from future security breaches. As cyber threats are continually evolving, our controls and procedures may become inadequate and we may be required to devote additional resources to modify or enhance our systems in the future.
18. | Our business may be adversely affected if we are unable to hire, retain and develop qualified personnel |
Nomura believe that our people are our greatest asset and infectious disease couldwe implement various talent management initiatives in a comprehensive manner. Any failure to hire, retain, and develop qualified personnel may materially and adversely affect our business,
| · | Risks Related to Holding or Trading of our Shares and ADSs |
19. | Because of daily price range limitations under Japanese stock exchange rules, you may not be able to sell your shares of the Company’s common stock at a particular price on any particular trading day, or at all |
Stock prices on Japanese stock exchanges are determined on a real-time basis by the equilibrium between bids and offers. These exchanges are order-driven markets without specialists or market makers to guide price formation. For the purpose of protecting investors from excessive volatility, these exchanges set daily upward and downward price fluctuation limits for each stock, based on the previous day’s closing price. Although transactions may continue at the upward or downward limit price if the limit price is reached on a particular trading day, no transactions may take place outside these limits. Consequently, an investor wishing to sell at a price above or below the relevant daily limit may not be able to sell his or her shares at such price on a particular trading day, or at all.
20. | Under Japan’s unit share system, holders of the Company’s shares constituting less than one unit are subject to transfer, voting and other restrictions |
The Company’s Articles of Incorporation, as permitted under the Companies Act, provide that 100 shares of the Company’s stock constitute one “unit.” The Companies Act imposes significant restrictions and limitations on holdings of shares that constitute less than a whole unit. Holders of shares constituting less than one unit do not have the right to vote or any other rights relating to voting. Under the unit share system, any holders of shares constituting less than a unit may at any time request the Company to purchase their shares. Also, holders of shares constituting less than a unit may request the Company to sell them such number of shares that the Company may have as may be necessary to raise such holder’s share ownership to a whole unit. Shares constituting less than a unit are transferable under the Companies Act, but may not be traded on any Japanese stock exchange.
21. | As a holder of ADSs, you will have fewer rights than a shareholder has and you will have to act through the depositary to exercise these rights |
The rights of shareholders under Japanese law to take actions including voting their shares, receiving dividends and distributions, bringing derivative actions, examining the company’s accounting books and records and exercising appraisal rights are available only to holders of record. Because the depositary, through its custodian agent, is the record holder of the shares underlying the ADSs, only the depositary can exercise those rights in connection with the deposited shares. The depositary will make efforts to vote the shares underlying
20
your ADSs as instructed by you and will pay you the dividends and distributions collected from the Company. However, in your capacity as an ADS holder, you will not be able to bring a derivative action, examine the Company’s accounting books or records or exercise appraisal rights except through the depositary.
22. | Rights of shareholders under Japanese law may be more limited than under the laws of other jurisdictions |
The Companies Act and the Company’s Articles of Incorporation and Regulations of the Board of Directors govern the Company’s corporate affairs. Legal principles relating to such matters as the validity of corporate procedures, directors’ and executive officers’ fiduciary duties and shareholders’ rights may be different from those that would apply to a
non-Japanese
company. Shareholders’ rights under Japanese law may not be as extensive as shareholders’ rights under the laws of other jurisdictions, including jurisdictions within the U.S. You may have more difficulty in asserting your rights as a shareholder than you would as a shareholder of a corporation organized in another jurisdiction.23. | The Company’s shareholders of record on a record date may not receive the dividend they anticipate |
The customary dividend payout practice of publicly listed companies in Japan may significantly differ from that widely followed or otherwise deemed necessary or fair in foreign markets. The Company’s dividend payout practice is no exception. The Company ultimately determines whether the Company will make any dividend payment to shareholders of record as of a record date and such determination is made only after such record date. For the foregoing reasons, the Company’s shareholders of record as of a record date may not receive the dividends they anticipate. Furthermore, the Company does not announce any dividend forecasts.
24. | It may not be possible for investors to secure personal jurisdiction within the U.S. over the Company or the Company’s directors or executive officers, or to enforce against the Company or these persons judgments obtained in U.S. courts predicated upon the civil liability provisions of the federal securities laws of the U.S. |
The Company is a limited liability, joint-stock corporation incorporated under the laws of Japan. Most of the Company’s directors and executive officers reside in Japan. Many of the Company’s assets and the assets of these persons are located in Japan and elsewhere outside the U.S. It may not be possible, therefore, for U.S.
investors to obtain personal jurisdiction over the Company or these persons within the U.S. or to enforce against the Company or these persons judgments obtained in U.S. courts predicated upon the civil liability provisions of the federal securities laws of the U.S. The Company believes that there is doubt as to the enforceability in Japan, in original actions or in actions for enforcement of U.S. court judgments, of liabilities predicated solely upon the federal securities laws of the U.S.
| · | Special Note Regarding Forward-looking Statements |
This annual report contains forward-looking statements that are based on our current expectations, assumptions, estimates and projections about our business, our industry and capital markets around the world. These forward-looking statements are subject to various risks and uncertainties. Generally, these forward-looking statements can be identified by the use of forward-looking terminology such as “may”, “will”, “expect”, “anticipate”, “estimate”, “plan” or similar words. These statements discuss future expectations, identify strategies, contain projections of our results of operations or financial condition, or state other forward-looking information.
Known and unknown risks including the
COVID-19
pandemic, uncertainties and other factors may cause our actual results, performance, achievements or financial position to differ materially from any future results, performance, achievements or financial position expressed or implied by any forward-looking statement contained in this annual report. Such risks, uncertainties and other factors are set forth in this Item 3.D and elsewhere in this annual report.21
Item 4. Information on the Company
A. History and Development of the Company.
The Company (previously known as The Nomura Securities Co., Ltd.) was incorporated in Japan on December 25, 1925 under the Commercial Code of Japan when the securities division of The Osaka Nomura Bank, Ltd. became a separate entity specializing in the trading and distribution of debt securities in Japan. The Company was the first Japanese securities company to develop its business internationally with the opening in 1927 of a representative office in New York. In Japan, we broadened the scope of our business when we began trading in equity securities in 1938 and when we organized the first investment trust in Japan in 1941.
over-the-counter
Our expansion overseas accelerated in 1967, when the Company acquired a controlling interest in Nomura International (Hong Kong) Limited for the purpose of conducting broker-dealer activities in the Hong Kong capital markets. Subsequently, we established a number of other overseas subsidiaries, including Nomura Securities International, Inc. in the U.S. in 1969 as a broker-dealer and Nomura International Limited, now Nomura International plc, in the U.K. in 1981, which acts as an underwriter and a broker, as well as other overseas affiliates, branches and representative offices.
On October 1, 2001, we adopted a holding company structure. In connection with this reorganization, the Company changed its name from “The Nomura Securities Co., Ltd.” to “Nomura Holdings, Inc.” The Company continues to be listed on the Tokyo Stock Exchange and other stock exchanges. A wholly-owned subsidiary of the Company assumed the Company’s securities businesses and was named “Nomura Securities Co., Ltd.”
The Company has proactively engaged in establishing a governance framework to ensure transparency in the Company’s management. Among other endeavors, when the Company adopted a holding company structure
and was listed on the New York Stock Exchange (“NYSE”) in 2001, the Company installed Outside Directors. In addition, in June 2003, the Company further strengthened and increased the transparency of the Company’s oversight functions by adopting the Company with Three Board Committees (previously known as the Committee System), a system in which management oversight and business execution functions are clearly separated.
In 2008, to pave the way for future growth, the Company acquired and integrated the operations of Lehman Brothers in Asia Pacific, Europe and the Middle East.
The address of the Company’s registered office is9-1,13-1,Nihonbashi
1-chome,
Chuo-ku,
Tokyo103-8645,
Japan, telephone number:+81-3-5255-1000.
The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at https://www.sec.gov. Our corporate website is https://www.nomuraholdings.com.
B. Business Overview.
Overview
We are one of the leading financial services groups in Japan and we operate offices in countries and regions worldwide including Japan, the U.S., the U.K., Singapore and Hong Kong Special Administrative Region (“Hong Kong”) through our subsidiaries.
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Our clients include individuals, corporations, financial institutions, governments and governmental agencies.
Our business consists of Retail, AssetInvestment Management, Wholesale and Merchant BankingWholesale, which are described in further detail below. See also Note 2221 “” in our consolidated financial statements included in this annual report.
Segment and geographic information
Corporate Goals and Principles
In Fundamental Management Policy formulated by the Board of Directors, our company has set the following Management Vision and Basic Vision of Group Management.
Fundamental Management Policy of Nomura Holdings, Inc.
(Management Vision)
Nomura Group’s management vision is to enhance its corporate value by deepening society’s trust in the firm and increasing satisfaction of stakeholders, including that of shareholders and clients.
As a global investment bank, the Company will provide high value-added solutions to clients globally, and recognizing its wider social responsibility, the Company will continue to contribute to the economic growth and development of society.
To enhance its corporate value, the Company places significance onutilizes return on equity (“ROE”) as a management indicator and will strive for sustainable business transformation.
(Basic Vision of Group Management)
(1) Nomura Group will establish its modernized growth model by itself through realizing expansion of its business in new domains. Nomura Group will also establish earning structure not subject to market condition with proper cost control and risk management.
(2) Nomura Group will aim to serve its customers at the highest level in every investment, by paying thorough attention to the needs of its customers and the market and by providing its customers with highly value-added solutions in financial and capital markets.
(3) Nomura Group will emphasize compliance with applicable laws and regulations and proper corporate behavior to carry out compliance and conduct risk management in daily business operations. Each company of Nomura Group shall respect customers’ interests and comply with applicable laws and regulations relating to the business.
(4) Nomura Group seeks to ensure effective management oversight and increase management transparency.
(5) Nomura Group will contribute to expanding securities markets through daily business and continuously engage in educational activities regarding investment in order to broaden participation in the securities market.
We have established the following management vision based on the management goals.
② Management Vision
Our diverse businesses rely on the trust of our clients and all stakeholders. We recognize that raising our corporate value and ensuring sustainable growth of society as a whole are closely linked together. This is why our management vision is to achieve sustainable growth by helping resolve social issues.
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Our Business Divisions
Retail
In our Retail Division, we conduct business activities by delivering a wide range of financial products and high quality investment services mainly for individuals and corporations in Japan primarily through a network of nationwide branches of Nomura Securities Co., Ltd. (“NSC”).NSC. The total number of local branches, including our head office, was 128119 as of the end of March 2020.2022. We offer investment consultation services to meet the medium and long-term needs of our clients. We discuss retail client assets in “” under Item 5.A of this annual report.
Retail Client Assets
We will strengthen our operating model to provide solutions and services that enable us further flexible approaches to the entire balance sheet of our clients.
Our AssetInvestment Management Division which is led by its core entity,responsible for expanding product offerings and improving our services to meet the diversifying investment needs of our clients in the broad asset management business. By combining our expertise in traditional assets such as stocks and bonds to alternative assets such as private equity, we provide added value and offer advanced services and solutions to meet the diverse needs of our clients. Within the Investment Management Division, Nomura Asset Management Co., Ltd. (“NAM”), employs approximately 1,400 professionals(NAM) and many of our other investment and asset management companies maintain their independence while driving progress within the asset management industry, increasing collaboration within the division, and leveraging our comprehensive capabilities elsewhere in various countries and regions around the world, including Japan with ¥49.3 trillion total assets under management as of March 31, 2020.Nomura Group.
We are committed to providing high-quality investment strategies, products and services to a wide range of investors. Along with delivering investment trusts for individual investors through financial institutions in Japan, we provide various investment solutions, both in public and private market asset classes, to pension funds, and institutional investors, and financial intermediaries globally.
co-invest
in private market funds we manage alongside external investors to demonstrate our commitment in the underlying investment strategies of those funds.In 2016, we acquired apracticing responsiblebased in the U.S. and announced a strategic partnership with ACI. We seek to deepen our strategic alliance from a “complementary” relationship to an “integrated” one as we continue to work together to further serve our clients. We include investment by accurately identifying the diversegains and losses from our investment needsin ACI as part of clients around the world, we aim to deliver not only superior investment returns, but to contribute to the growth and development of capital markets through stewardship activities, including dialogue with the companies in which we invest.
our Investment Management Division’s revenue.non-controlling
economic interest in American Century Investments (“ACI”), an independent investment management firm Wholesale
Global Markets
Global Markets provides research, sales, trading, agency execution, and market-making of fixed income and equity-related products.
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Our global fixed income offerings include, among other products, government securities, interest rate derivatives, investment-grade and high-yield corporate debt securities, credit derivatives,(“OTC”) and listed markets. We are primary dealers in the Japanese government securities market as well as in the Asian, European and U.S. markets.
G-10
and emerging markets foreign exchange, asset-backed securities and mortgage-related products, inover-the-counter
Our global equity-related products include equity securities, Exchange Traded Funds (“ETFs”), convertible securities, listed and OTC equity derivatives, and prime services. In addition, we offer execution services based on cutting-edge electronic trading technology to help clients navigate through the complex market structure and achieve best execution. In order to provide extensive market access to our clients, we are also a member of various exchanges around the world, with leading positions on the Tokyo Stock Exchange.
These product offerings are underpinnedsupported by electronic/digital technology, and our global structuring and quants function which provide tailored ideas and trading strategies for our institutional and corporate clients as well as our retail franchise.
Investment Banking
We offer a broad range of investment banking services to a diverse range of corporations, financial institutions, sovereigns, financial sponsors and others. We aim to establish and cultivate strong, long-term relationships with our clients by providing them with our extensive resources for each bespoke solution.
Underwriting.
Financial Advisory
& Solutions Services.
On April 1, 2020, we completed the acquisition of Greentech Capital, LLC, an M&A boutique that is strong in sustainable technology and infrastructure. WeWhile we expand our global advisory business, we will contribute to the realization of a sustainable society through synergyfocus on broadening ESG related businesses with the franchise.
Our Research Activities
We have an extensive network of intellectual capital with key research offices in Tokyo, Hong Kong and other major markets in the Asia-Pacific region, as well as in London and New York. Nomura isWe are recognized as a leading content provider with an integrated global approach to providing capital markets research. Our analysts collaborate closely across regions and disciplines to track changes and spot future trends in politics, economics, foreign exchange, interest rates, equities, and credit, and also provide quantitative analysis.
Our Information Technology
We believe that information technology is one of the key success factors for our overall business and intend to maintain and enhance our solid technology platform to ensure that the Nomura Group iswe are able to fulfill and exceed the various needs of our clients. Accordingly, we will continue to invest, enhance and adapt our technology platform to ensure it remains suitable for each division and proactively seek and implement innovative financial technology to improve the operations of our business.
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In our Retail Division, we continually invest and enhance our core system and related systems to improve efficiency onin our business operation.operations. We are also continuously working on improving our internet-based and smartphone platforms.
In our Investment Management Division, we continue to invest and enhance our technology platforms related to our core businesses leveraging third-party services to improve our capabilities and efficiency. We are also continuously working on digital marketing to expand business opportunities, and utilizing advanced technology to automate and sophisticate operations for investment management.
In our Wholesale Division, we continually invest and enhance our technology platforms to provide better risk management, improved data governance and also to increase trading capabilities through platforms allowing direct market access and algorithmic trading. In order to ensure the support level of our Wholesale operations, we will continue to maintain utilization of our offshore service entities in India and enhance our regional support based capabilities.
Furthermore, our digital transformation efforts are directly linked to the competitiveness of financial institutions in the future, and we will continue to promote a wide range of initiatives based on our strategy in order to provide highly convenient services to our clients and respond to diversifying needs. We also believe that our people are the source of added value created by the Nomura Group even in a world where digitization and digitalization are advanced. We will continue to strengthen the development of our human resources with the qualities required for the upcoming era, such as consulting capabilities that make full use of bothand virtual communications.
face-to-face
Competition
The financial services industry is intensely competitive and we expect it to continue remain so. We compete globally with other brokers and dealers, investment banking firms, commercial banks, investment advisors and
other financial services firms. We also face competition on regional, product and niche bases from local and specialist firms. A number of factors determine our competitive position against other firms, including:
the quality, range and prices of our products and services,
our ability to originate and develop innovative client solutions,
our ability to maintain and develop client relationships,
our ability to access and commit capital resources,
our ability to retain and attract qualified employees, and
our general reputation.
Our competitive position is also affected by the overall condition of the global financial markets, which are influenced by factors such as:
the monetary and fiscal policies of national governments and international economic organizations, and
economic, political and social developments both within and between Japan, the U.S., Europe and other major industrialized and developing countries and regions, such as thein 2020.since 2020, and
COVID-19
pandemic increasing digitalization beyond the traditional financial sector
In Japan, we compete with other Japanese and
non-Japanese
securities companies and other financial institutions. Competition has become more intense due to deregulation in the Japanese financial industry since the late 1990s and the increased presence of global securities companies and other financial institutions. In particular, major global firms have increased their presence in securities underwriting, corporate advisory services (particularly, mergers and acquisitions advisory) and secondary securities sales and trading.26
There has also been substantial consolidation and convergence among financial institutions, both within Japan and globally and this trend accelerated further in recent yearscontinued as the credit crisis caused mergers and acquisitions and asset acquisitions in the industry. The growing presence and scale of financial groups which encompass commercial banking, securities brokerage, investment banking and other financial services has led to increased competition. Through their broadened offerings, these firms are able to create good client relationships and leverage their existing client base in the brokerage and investment banking business as well.
In addition to the breadth of their products and services, these firms have the ability to pursue greater market share in investment banking and securities products by reducing margins and relying on their commercial banking, asset management, insurance and other financial services activities. This has resulted in pricing pressure in our investment banking and trading businesses and could result in pricing pressure in other areas of our businesses. We have also competed, and expect to compete, with other financial institutions which commit capital to businesses or transactions for market share in investment banking activities. In particular, corporate clients may seek loans or commitments in connection with investment banking mandates and other assignments.
Moreover, the trend toward consolidation and convergence has significantly increased the capital base and geographic reach of some of our competitors, hastening the globalization of the securities and financial services markets. To accommodate this trend, we will have to compete successfully with financial institutions that are large and well-capitalized, and that may have a stronger local presence and longer operating history outside Japan.
Regulation
Japan
Regulation of the Securities Industry and Securities Companies
its authority to the Commissioner of the FSA. The Company, as a holding company of a securities company, as well as subsidiaries such as NSC and Nomura Financial Products & Services, Inc. (“NFPS”), are subject to such supervision and regulation by the FSA. The Commissioner of the FSA delegates certain authority to the Director General of Local Finance Bureaus to inspect local securities companies and branches. Furthermore, the Securities and Exchange Surveillance Commission, an external agency of the FSA which is independent from the Agency’s other bureaus, is vested with authority to conductmonitoring of the securities markets and to investigate irregular activities that hinder the fair trading of securities, including inspection of securities companies. Securities companies are also subject to the rules and regulations of the Japanese stock exchanges and the Japan Securities Dealers Association, a self-regulatory organization of the securities industry.
day-to-day
To enhance investor protection, each Japanese securities company is required to segregate client assets and to hold membership in an Investor Protection Fund approved by the government under the FIEA. The Investor Protection Fund is funded through assessments on its securities company members. In the event of failure of a securities company that is a member of the fund, the Investor Protection Fund provides protection of up to ¥10 million per client. The Investor Protection Fund covers claims related to securities deposited by clients with the failed securities company and certain other client claims.
Regulation of Other Financial Services
Financial Instruments and Exchange Act
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most aspects of securities transactions and the securities industry, including public offerings, private placements and secondary trading of securities,
on-going
disclosure by securities issuers, tender offers for securities, organization and operation of securities exchanges and self-regulatory associations, and registration of securities companies. In addition, to enhance fairness and transparency in the financial markets and to protect investors, the FIEA provides for, among other things, penalties for misrepresentations in disclosure documents and unfair trading, strict reporting obligations for large shareholders and corporate information disclosure systems, including annual and quarterly report systems, submission of confirmation certificates concerning the descriptions in securities reports, and internal controls over financial reporting.The FIEA also provides for corporate group regulations on securities companies the size of which exceeds specified parameters (Tokubetsu Kinyu Shouhin Torihiki Gyosha, “Special Financial Instruments Firm”) and on certain parent companies designated by the Prime Minister (Shitei Oyagaisha, “Designated Parent Companies”) and their subsidiaries (together, the “Designated Parent Company Group”). The FIEA aims to regulate and strengthen business management systems, compliance systems and risk management systems to ensure the protection of investors. The FIEA and its related guidelines also provide reporting requirements to the FSA on the Designated Parent Company Group’s business and capital adequacy ratios, enhanced public disclosures as well as restrictions on compensation all of which are designed to reduce excessive risk-taking by executives and employees of a Designated Parent Company Group. We were designated as the Designated Parent Company of NSC in April 2011 and were designated as the Designated Parent Company of NFPS in December 2013. As the Designated Parent Company and the final parent company within a corporate group (Saishu Shitei Oyagaisha, “a Final Designated Parent Company”), we are subject to these requirements. A violation of the FIEA may result in various administrative sanctions, including the revocation of registration or license, the suspension of business or an order to discharge any director or executive officer who has failed to comply with the FIEA.
Orderly Resolution Regime. On March 6, 2014, amendments to the FIEA and the Deposit Insurance Act, which included the establishment of an “Orderly Resolution Regime for Financial Institutions” to prevent a
financial crisis that may spread across financial markets and may seriously impact the real economy, took effect. Under the Orderly Resolution Regime, the Financial Crisis Response Council, chaired by the Prime Minister, will take measures such as providing liquidity to ensure the performance of obligations for critical market transactions where it is considered necessary to prevent severe market disruption. Such measures will be funded by the financial industry, except in special cases where the government will provide financial support.
TLAC. In April 2016, the FSA published its policy describing its approach and framework for the introduction of the TLAC requirements in Japan applicable to Japanesewill beis required to meet a minimum External TLAC requirement of holding TLAC in an amount at least 16% of our consolidated risk-weighted assets as from March 31, 2021 and at least 18% as from March 31, 2024 as well as at least 6% of the applicable Basel III leverage ratio denominator from March 31, 2021 and at least 6.75% from March 31, 2024.
G-SIBs
and, in April 2018, released revisions to such policy that extended the coverage of the TLAC requirements in Japan not only to JapaneseG-SIBs
but also to JapaneseD-SIBs
that are deemed (i) of particular need for a cross-border resolution arrangement and (ii) of particular systemic significance to Japanese financial system if they fail. Based on the revised policy, in March 2019, the FSA finally published the notices and guidelines of TLAC regulations in Japan (including TLAC holding regulations). Although Nomura is not identified as aG-SIB
as of the date of this annual report, Nomura is subject to the TLAC regulations in Japan, and Regulatory Changes. On May 31, 2019, a bill to amend the FIEA and the Payment Services Act, etc. was passed by the Diet of Japan. The amendment to the FIEA includes establishing the concept of “electronically recorded transferable rights” (, “ERTRs”) and treating ERTRs as Securities defined in Paragraph 1 of the FIEA. As a result, ERTRs are subject to requirements of the Disclosure of Corporate Affairs and Other Related Matters, and regulations for Financial Instruments Business Operators Engaged in Type I Financial Instruments Business apply to institutions dealing in ERTRs. Additionally, “crypto assets” () are now included in the definition of “Financial Instruments”, and derivatives transactions related to crypto assets are subject to the provisions of the FIEA. As a result of the amendment, certain special provisions
denshi kiroku iten kenri
“angou shisan”
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concerning the crypto asset-related business have been introduced, whereby Financial Instruments Business Operators, etc. must explain the nature of crypto assets and must not make any representation that may mislead their customers about the nature of crypto assets. Moreover, regulations governing unfair acts in respect of crypto asset and crypto asset derivative transactions are introduced. The amendment became effective on May 1, 2020.
Overseas
Our overseas offices and subsidiaries are also subject to various laws, rules and regulations applicable in the countries where they conduct their operations, including, but not limited to those promulgated and enforced by the U.S. Securities and Exchange Commission (“SEC”), the Commodity Futures Trading Commission (“CFTC”), the U.S. Treasury, the Financial Stability Oversight Council (“FSOC”), the New York Stock Exchange, the Chicago Mercantile Exchange and other exchanges and/or clearinghouses, the Financial Industry Regulatory Authority (“FINRA”) (a privateself-regulatory organization with quasi-governmental authority and a regulator(“SRO”) for allthe U.S. securities companies doing business in the U.S.)industry), the National Futures Association (“NFA”) (a self-regulatory organization(an SRO for the U.S. derivatives industry) in the U.S.; by the Prudential Regulation Authority (“U.K. PRA”) and the Financial Conduct Authority (“U.K. FCA”) in the U.K; and by a number of EU regulators including Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin), Autorité de Contrôle Prudentiel et de Résolution (ACPR) and Autorité des Marches Financiers (AMF). We are also subject to international money laundering and related regulations in various countries. For example, the USA PATRIOT Act of 2001 contains measures to prevent, detect and prosecute terrorism and international money laundering by imposing significant compliance and due diligence obligations and creating crimes and penalties. Failure to comply with such laws, rules or regulations could result in fines, suspension or expulsion, which could materially and adversely affect us.
Regulation in the United States
In responsethe U.S., the SEC is the federal agency responsible for the administration of the federal securities laws, and the CFTC is the federal agency responsible for the administration of laws relating to commodity futures, commodity options and swaps industry. In addition, FINRA and the financial markets crisis, governments and regulatory authoritiesNFA are SROs that are actively involved in various jurisdictions have made and continue to make numerous proposals to reform the regulatory framework for, or impose a tax or levy upon, theregulation of financial services industrybusinesses (securities businesses in the case of FINRA and commodities/futures businesses in the case of the NFA). In addition to enhance its resilience against future crises,
Broker-dealers are subject to SEC, FINRA and state securities regulations that package and sell asset-backed securities (“ABS”) and firms that invest in ABS; (iv) establish risk retention requirements for ABS; (v) establish rules related to the orderly liquidation of certain broker dealers; (vi) create annual stress tests; and (vii) set forth a number of executive compensation mandates, including rules to curtail incentive compensation that promotes excessive risk taking and listing standards for recovery of erroneously awarded compensation. The new regulatory framework for OTC derivatives includes mandates for clearing transactions with designated clearing organizations, exchange trading, new capital requirements, bilateral and variation margin fornon-clearedderivatives, reporting and recordkeeping, and internal and external business conduct rules. Some U.S. derivatives and executive compensation rules may be applied extraterritorially and therefore impact somenon-U.S.Nomura entities.
Registered investment advisors are subject to, among other requirements, SEC regulations concerning marketing, transactions with affiliates, custody of theclient assets, disclosures to clients, conflict of the SEC rules, guidance relating to the certification and opinion requirements fornon-U.S.interest, insidersecurity-based swap dealer registration applicants, andnon-U.S.AP requirements relevant to registered security-based swap dealers. In addition, the SEC adopted a conditional exception from the security-based swap dealerde minimisregistration calculation that would otherwise require anon-U.S.security-based swap entity to count a security-based swap transaction with anon-U.S.counterparty that was arranged, negotiated or executed by personnel or personnel of agents in the U.S. These cross-border rules and amendments may impact somenon-U.S.Nomura entities. Significantly, the SEC’s cross-border final guidance and rule amendments trigger the eighteen (18) month countdown for security-based swap dealer registration and compliance with all final security-based swap dealer requirements. Consequently, for those dealers and other market participants who breach thede minimiscounting threshold, security-based swap dealer registration and compliance with all final security-swap dealer rules will be no later than November 1, 2021.
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trading and Unified Agendarecordkeeping. Investment advisors that are also registered as commodity trading advisors or commodity pool operators are also subject to regulation by the CFTC and the NFA. Certain of Regulatoryour subsidiaries, including NSI as well as Nomura Asset Management Co., Ltd., Nomura Asset Management U.S.A. Inc. and Deregulatory Actions.”other asset management subsidiaries, are registered as investment advisors with the SEC.
FCMs, introducing brokers and swap dealers that engage in commodity options, futures or swap transactions are subject to regulation by the CFTC and the NFA. CFTC rules require registration of swap dealers, mandatory clearing and execution of certain default swaps through regulated clearing houses and execution facilities, real-time public reporting and adherence to business conduct standards for allSEC’s DivisionCFTC has also adopted financial reporting requirements for covered swap entities and amended existing capital rules for CFTC-registered FCMs to provide explicit capital requirements for proprietary positions in swaps and security-based swaps that are not cleared by a clearing organization. Swap dealers that are not subject to the jurisdiction of Tradinga Prudential Regulator are subject to the margin rules issued by the CFTC (which coversMarkets has announced that itthose for initial margin are in the process of being phased in through September 2022, depending on certain activity levels of the swap dealer and the relevant counterparty. Inter-affiliate transactions under the CFTC margin rules are generally exempt from initial margin requirements under certain conditions. NSI is considering recommending thatregistered as an FCM with the CFTC. NGFP and Nomura International plc, a U.K. subsidiary, are registered as swap dealers with the CFTC. ILLC is registered as an introducing broker with the CFTC.
in-scope
swaps. A number of these requirements, particularly those regarding recordkeeping and reporting, also apply to transactions that do not involve a registered swap dealer. CFTC rules establishing capital requirements for swap dealers that are not subject to the capital rules of a prudential regulator, such as the FRB, became effective in October 2021. The non-bank
swap dealers, such as our subsidiaries). The rules for variation margin have become effective, and SEC rules constituting its SBS regulatory regime, which set registration and other compliance dates for SBS dealers and major SBS participants, generally came into effect by November 1, 2021. Under these rules, SBS dealers are subject to regulation by the SEC, propose an amendmentincluding (i) capital, margin and segregation requirements; (ii) recordkeeping, financial reporting and notification requirements; (iii) business conduct standards; (iv) regulatory and public trade reporting; and (v) the application of risk mitigation techniques to its net capital rule that would prohibit a broker-dealer that carries customer accounts from having a ratiouncleared portfolios of total assets to regulatory capital in excessSBSs. In the fourth quarter of a2021, certain level. The SEC and the CFTC are also considering a number of changes to market structure rules. The SEC adopted Rule 613 to create a consolidated audit trail (“CAT”) intended to allow regulators to track all activity throughout the U.S. markets in National Markets Systems (“NMS”) securities. Self-regulatory organizations must jointly submit a NMS plan to create and implement the CAT, which will replace existing reporting systems OATS, TRACE and EBS. On June 15, 2016 the SEC approved amendments to FINRA Rule 4210, which require FINRA member broker-dealers to set risk limits on each counterparty transacting in specified forward-settling agency mortgage-backed securities (“covered agency transactions”) as of December 15, 2016, and to collect variation margin and/or maintenance margin from certain counterparties transacting in covered agency transactions as of June 25, 2018. A failure to collect required margin in a timely manner (T+1) results in an obligation for the FINRA member broker-dealer to take a capital charge, and ultimately (T+5) to liquidate the customer’s position in order to satisfy the margin deficiency. On October 25, 2019, FINRA filed a rule changeour subsidiaries registered with the SEC again extending the effective date of the Rule 4210 margin requirements to March 25, 2021, but has not yet issued proposed revisions to Rule 4210. On November 7, 2016, the CFTC approved a supplemental notice of proposed rulemaking modifying certain rules proposed in the CFTC’s December 17, 2015, notice of proposed rulemaking regarding Regulation AT. Proposed Regulation AT would have, among other things, required firms engaged in electronic algorithmic trading to (i) register with the CFTCas SBS dealers and (ii) submit their trading source code to the CFTC. While the proposed Regulation AT has not been finalized, the CFTC continues to consider comments that were received in connection with the proposed rulemaking.
The CFTC and the SEC have adopted rules relating to an investment managercross-border regulation of swaps, SBSs, business conduct and registration requirements. The CFTC and the SEC have entered into agreements with certain
non-U.S.
regulators regarding the cross-border regulation of derivatives and the mutual recognition of certain cross-border execution facilities and certain clearing houses, and have approved substituted compliance with certainnon-U.S.
regulations related to certain business conduct requirements and margin rules.Additional legislation or rules promulgated by the SEC, FINRA, CFTC, NFA, other SROs and state securities regulators, or changes in such legislation or rules or in the interpretation or enforcement of existing legislation or rules may directly affect our operations and profitability. The SEC, CFTC, FINRA, NFA, state securities regulators and state attorneys general may conduct administrative proceedings or initiate civil litigation that is required, either directlycan result in adverse consequences for us, our subsidiaries and our and their respective officers and employees (including, without limitation, injunctions, censures, fines, suspensions, directives that impact business operations (including proposed expansions), membership expulsions, or by contractual obligation, to pay for such research services with MiFIDII-compliantrevocations of licenses and registrations).research payments. Thisno-actionletter, which was set to expire on July 3, 2020, has been extended until July 3, 2023.
Further, The Foreign Account Tax Compliance Act (“FATCA”), which was enacted in 2010, requires foreign financial institutions (“FFIs”) to report to the U.S. Internal Revenue Service information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest. As a result, Nomura is subject to certain reporting requirements consistent with a mutual agreement between Japanese governmental authorities and the U.S. Treasury Department.
30
Proposed Changes to U.S. Regulation
In 2016, the SEC adopted Rule 613 to create a consolidated audit trail (“CAT”) intended to allow regulators to track all activity throughout the U.S. markets in National Markets Systems securities. Following system development and implementation, the CAT is now live, and the final phased on compliance periods will end in
mid-2022.
In June 2016, the SEC approved amendments to FINRA Rule 4210, which require FINRA member broker-dealers to set risk limits on each counterparty transacting in specified forward-settling agency mortgage-backed securities (“covered agency transactions”) as of December 22, 2017, President Donald Trump signed2016, and to collect variation margin and/or maintenance margin from certain counterparties transacting in covered agency transactions as of June 2018. A failure to collect required margin in a timely manner (T+1) results in an obligation for the Tax CutsFINRA member broker-dealer to take a capital charge, and Jobsultimately (T+5) to liquidate the customer’s position in order to satisfy the margin deficiency. The effectiveness of the Rule 4210 margin requirements has been delayed a number of times. Most recently, FINRA published a notice of filing of proposed changes to the margin rule on February 25, 2022, delaying the date of effectiveness to October 26, 2022.
In January 2021, CFTC adopted rules that limit the size of positions in physical commodity derivatives that can be held by any entity, or any group of affiliates or other parties trading under common ownership or control, or trading in coordination with each other. Swap dealers may currently claim an exemption from the position limits for the bona fide hedging of swap-related risks, but this exemption will be eliminated in 2023. The CFTC position limits apply to futures on specified physical commodities and options on such futures, and these limits apply to both physically and cash settled positions. In addition, in 2023, the position limit rules will become applicable to swaps that are economically equivalent to such futures and options. The position limit rules initially impose limits in the spot month only (i.e., during the delivery period for the physical commodities, which is typically a period of several days). CFTC spot and
non-
spot month limits will continue to apply to futures on certain legacy agricultural commodities, and it is possible thatnon-spot
month limits will at some point be adopted for futures and swaps on other physical commodities.In November 2021, the SEC published proposed Exchange Act into law. Among other things,Rulelegislation includesmaterial terms of securities lending transactions to a registered national securities association, such as the Base Erosion and Anti-Abuse Tax (“BEAT”), effectively a minimum tax on large corporations applied by adding backFinancial Industry Regulatory Authority. The registered national securities association would then make the material terms of the securities lending transaction available to taxable income certain deductible payments made to related foreign persons. These tax law changes are complex and raise significant interpretive issues and therefore we anticipate future guidance on thesethe public.
10c-1,
which would require lenders of securities to provide the In December 2021, the SEC proposed rules to addressprevent fraud, manipulation and deception in connection with security-based swaps, to prevent undue influence over the areaschief compliance officer (CCO) of uncertainty which could also have an adverse impact onSBS dealers and major SBS swap participants, and to require any person with a large security-based swap position to publicly report certain information related to the tax liabilities of our U.S. entities.position.
Regulation in the U.K. and Europe
As part of global efforts to establish a framework to improve authorities’ capacity to resolve failing SIFIs, the U.K. implemented the EU Bank Recovery and Resolution Directive (“BRRD”), which was published on June 12, 2014. The BRRD also aims to implement FSB recommendations on recovery and resolution regimes for financial institutions. The BRRD applies to banks and investment firms operating in EU member states, including EU branches and subsidiaries of third country firms. It includes requirements for the preparation of recovery and resolution plans (“RRPs”) by institutions and regulators. It also creates various powers for EU regulators to intervene to resolve institutions at risk of failure, including the ability to sell or transfer all or part of an institution and the introduction of a debt write down or
bail-in
tool.As part of the
bail-in
rules, firms will be required to maintain capital resources sufficient to meet the stipulated minimum requirement for eligible liabilities (“MREL”). The MREL overlaps with the global capital standards on total loss absorbing capacity (“TLAC”) forG-SIBs
issued by the FSB on November 9, 2015. As31
Nomura Group has adopted a single point of entry resolution strategy, European subsidiaries are subject to internal MREL. The internal MREL became applicable in the U.K. for all U.K. incorporated institutions from January 1, 2019 for firms whose failure would have a significant impact on the U.K. financial system and for certain overseas firms where the Bank of England (“BOE”) would support a home resolution authority in carrying out a cross-border resolution. From January 1, 2020, Nomura is required to hold internal MREL resources above the regulatory capital requirements for the material subsidiaries in the U.K., identified as Nomura Europe Holdings plc (“NEHS”) on a
sub-consolidated
basis and NIP.In July 2019, the BOE and U.K. PRA published a policy statement on the Resolvability Assessment Framework (“RAF”). The proposals for the RAF bring together existing policies such as MREL and Operational Continuity in Resolution (“OCIR”) as well as other new resolution policies in order to follow the resolution principles set out by the FSB. Under the policy, it is expected firms perform an assessment of their preparations for resolution and the BOE provide a public statement concerning resolvability of each firm. The BOE and U.K. PRA may consider, in consultation with Financial Services Agency (“FSA”), apply some or all of the requirements set out in the policy statement to NEHS.
EU banks and investment firms including those located in the U.K. have been subject to the current prudential regulatory capital regime since the introduction of the Capital Requirements Regulation and Capital Requirements Directive (collectively, “CRD IV”) in January 2014. The aim of CRD IV was to strengthen the resilience of the EU banking sector so it would be better placed to absorb economic shocks while also ensuring that banks continued to finance economic activity and growth. CRD IV sets out regulations for minimum capital requirements for banks and investment firms and also introduced new capital and liquidity buffers.
In November 2016 the European Commission proposed amendments to this regulation in a “CRRII” package of reforms. Together with the updates to the Bank Recovery and Resolution Directive (“BRRD II”) and Single Resolution Mechanism Regulation (“SRMR”) this package is an important step towards the completion of the European post-crisis regulatory reforms and implements some of the outstanding global reforms agreed by the Basel Committee and the FSB. The EU views the amendments as essential to making its financial system more stable and resilient, and the financial institutions more resolvable. These updates entered into force in June 2019 with the majority of changes being introduced two years later in June 2021.
Among other things these proposed changes include the introduction of binding minimum leverage and net stable funding ratios, changes to the calculations for counterparty credit risk of derivatives, a tightening of large exposure limits, introduction of new reporting requirements for market risk and the introduction of a new EU intermediate parent undertaking requirement. These reforms are generally expected to lead to an increase in local capital and liquidity requirements and increased costs of compliance.
Subsequent to the finalization of work on the CRRII package in October 2021 the EU willintroduced a first draft of proposals to introduce a “CRRIII”“CRRIII/CRDVI” package of reforms to implement all outstanding elements of the Basel III framework including changes to the calculations for Operational Risk, CVA, Credit Risk, FRTB capital requirements and the introduction of an output floor to modelled calculations. The draft rules also include proposals to strengthen the resilience of the banking sector to environmental, social and governance (“ESG”) risks and to enhance the strength of supervision within the EU to better protect financial stability. The proposals are proposed for implementation in Jan 2025.
Since Brexit, the CRR and subsequent amendments are no longer applicable in the U.K. HMT and the PRA have published updated rules for implementation of similar reforms to the CRRII in the U.K. which were implemented from Jan 2022. Subsequent to this, HMT and the PRA will also consult towards the end of 2022 on implementing the final elements of the Basel III framework equivalent to those in the EU CRRIII package with a proposed implementation date of Jan 2025.
The revised MiFID II, which is split into the Markets in Financial Instruments Directive (“MiFID”) and the Markets in Financial Instruments Regulation (“MiFIR”) was published in the EU Official Journal on June 12,
32
2014 and entered into force on July 2, 2014. The majority of the new rules under MiFID II and MiFIR took effect from January 3, 2018, with Member States required to implement MiFID II through national legislation by July 3, 2017. The legislation sought to introduce wide-reaching changes to markets, including the extension of market transparency rules into
non-equities
and potentially reducing the size of the OTC derivative market by mandating the clearing of standardized OTC transactions through central clearing counterparties and their trading through regulated trading venues. The new framework introduced a market structure which was intended to close certain loopholes and ensure that trading, wherever appropriate, takes place on regulated platforms. It has introduced rules on high frequency trading with a view to improving the transparency and oversight of financial markets. The revised MiFID also aimed to strengthen the protection of investors by introducing more robust organizational and conduct requirements and by strengthening the role of management bodies. The new framework also increased the role and supervisory powers of regulators and established powers to prohibit or restrict the marketing and distribution of certain products in well-defined circumstances. A harmonized regime for granting firms from third countries access to EU professional markets, based on an equivalence assessment of third-country jurisdictions by the Commission, was also introduced.Following a range of consultations and technical advice published by the European Securities and Markets Authority (“ESMA”), in April 2016 the European Commission adopted a MiFID Delegated Directive (“Directive”). The Directive contains provisions on investor protection, notably on safeguarding of clients. The Commission also adopted a delegated regulation supplementing MiFID II. This regulation was aimed at specifying, in particular, the rules relating to exemptions, the organizational requirements for investment firms, and conduct of business obligations in the provision of investment services. In May 2016, the Commission adopted a further delegated regulation supplementing MiFIR. This regulation aims at specifying, in particular, the rules relating to determining liquidity for equity instruments, the rules on the provision of market data on a reasonable commercial basis, the rules on publication, order execution and transparency obligations for
systematic internalisers, and the rules on supervisory measures on product intervention by the ESMA, the European Banking Authority (‘EBA’) and national authorities, as well as on position management powers by the ESMA.
After two years, the EU Commission is required to evaluate the overall functioning of the MiFID II/ MiFIR regime, in particular, addressing those areas where challenges still exist, and present a report to the European Parliament and Council together with a legislative proposal to reform the regime if required (the so called ‘MiFID Refit’). As part of this process, ESMA has already launched a number of consultations on specific areas, which will feed into the Commission’s reports.
Certain amendments to support economic recovery from the
COVID-19
pandemic, including via relief from administrative requirements on firms, has been published in the EU Official Journal on February 26, 2021 (MiFID‘Quick-Fix’).
EU Member States were required to transpose the quick fix amendments into their national frameworks by November 28, 2021 and apply them by February 28, 2022. Alongside this on November 25, 2021, the EU Commission published its legislative proposal for a review of MiFID II/MiFIR. Key proposals include refinements to the scope of the Securities Trading and Derivatives Trading Obligations, adjustments to the transparency regime and reporting requirements and considerations around establishment of a Consolidated Tape. Since Brexit, these amendments will not be applicable in the U.K. and the FCA has consulted on proposed changes to the conduct and organizational rules under in the U.K. MiFID, specifically relating to research and best execution reporting. On November 30, 2021 the FCA published the Policy Statement (“PS”) on changes to U.K. MiFID’s conduct and organizational requirements. The PS sets out changes to best execution reporting requirements and research inducement rules. Effective from December 1 2021, U.K. firms are no longer required to produce best execution reports. In addition, from March 1, 2022, asset managers and research firms will be able to exercise the options on exempting inducement rules on research. This means U.K. firms will be able to provide research on FICC instruments to clients without it being subject toun-bundling.
On July 1, 2021 the U.K. HMT launched a Wholesale Market Review Consultation. The consultation is part of the Government’s commitment to improving the competitiveness of the U.K. as a hub for capital markets, and
33
is a central part of the Government’s post-Brexit strategy for financial services. It has a wide ranging focus, including the regulatory framework for trading venues, systematic internalizers, market data, and fixed income, equity, derivative and commodity markets. It proposes a number of amendments to the U.K.’s onshored MiFID regime and asks for industry input on a range of other topics.
The European Market Infrastructure Regulation (“EMIR”) became effective on August 16, 2012, and applies to any entity established in the EU that is a legal counterparty to a derivative contract, even when trading with
non-EU
firms. EMIR was created with the intention of stabilizing OTC markets found within EU member states. Although the majority of EMIR regulations have already been implemented, on May 28, 2019, Regulation (EU) 2019/834 (EMIR REFIT) was published in the EU’s Official Journal, with the aim of amending EMIR to make some of its requirements simpler and more proportionate, particularly fornon-financial
counterparties (“NFCs”). With a few exceptions, the majority of the provisions in the Regulation entered into force on June 17, 2019.Following the announcement made by BCBS and the International Organization of Securities Commissions (‘IOSCO’) on April 3, 2020 to defer by one year, the deadline for completing the final two implementation phases of the bilateral margin requirements, the European Supervisory Authorities (ESMA, EBA and the European Insurance and Occupational Pensions Authority) have published joint draft Regulatory Technical Standards to amend the Delegated Regulation on the risk mitigation techniques for
non-centrally
cleared OTC derivatives (bilateral margining), under EMIR to incorporate in the EU, the one year deferral. Phase 6 represents the final stage of thephase-in
of the rules and applies from September 1, 2022.On January 12, 2016, the Securities Financing Transactions Regulation (“SFTR”), which forms part of the EU’s package of legislation targeted at reforming shadow banking and aims to improve transparency in the securities financing transactions (“SFTs”) market, came into force subject to a range of transitional provisions over a number of years. On April 11, 2019, the final regulatory technical standards entered into force and MiFID firms were due to commence their reporting one year later on April 11, 2020. However, due to thehas beenwas extended until July 13, 2020. Other reporting counterparties arewere phased in over the following months, ending with NFCs on January 11, 2021.
COVID-19
pandemic, the reporting under the SFTR On November 25, 2020, the FCA issued a statement explaining what trade repositories, and the U.K. counterparties that use them, should do to ensure they are compliant with the U.K. SFTR reporting obligations from the end of the Brexit transition period. All U.K. SFTR counterparties that enter into securities financing transactions that are in scope of the U.K. SFTR are required to report details of those transactions to anIn June 2015,FCA-registered,or recognised, trade repositories.
On September 17, 2014, the Central Securities Depositories Regulation (“CSDR”) came into force, in the EU. It aims to harmonise certain aspects of the settlement cycle and settlement discipline and to provide a set of common requirements for CSDs operating securities settlement systems across the EU. CSDR plays a pivotal role for post-trade harmonisation efforts in Europe, as it will enhance the legal and operational conditions for cross-border settlement in the EU. On February 5, 2020, ESMA has published a Final Report on draft regulatory technical standards (“RTS”) on postponing the date of entry into force of the Commission Delegated Regulation (EU) 2018/1229 (RTS on settlement discipline) to February 1, 2021. It has been endorsed by the European Commission on May 8, 2020 and is now subject to theCouncil to the EU members issued the final version of the Fourth Money Laundering Directive (“4MLD”). All EU member states, includingCouncil. Furthermore, on August 28, 2020, ESMA published another Final Report on draft RTS definitively postponing the U.K., had until June 26, 2017 to transpose the requirementsdate of entry into force of the directive into national law. InCommission Delegated Regulation (EU) 2018/1229 (RTS on settlement discipline) until February 2016,1, 2022. On January 27, 2021, the EU Commission published a delegated act confirming the entry into force of CSDR Settlement Discipline to February 1, 2022. On September 24, 2021 ESMA wrote to European Commission regarding the implementation of the Central Securities Depositories Regulation, urging it to consider a delay of the mandatoryan effortfavor of delaying the entry into force of the
non-objection
of the European Parliament and buy-in
regime. ESMA is in buy-in
requirements—scheduled on February 1, 2022—while applying the other settlement discipline requirements, such as settlement fails reporting and cash penalties regime, as planned. On34
November 24, 2021, the EU Commissioner announced that the mandatorybolster the fight against terrorist financing, proposed amendmentsprioritize supervisory actions in relation to the 4MLDapplication of the
buy-in
regime would not enter into force on February 1, 2022. On December 17, 2021, ESMA issued a public statement informing national competent authorities (NCAs) not to buy-in
regime until the provision for postponing the application of thebuy-in
regime is formally in place. The remaining requirements of CSDR settlement discipline, in particular the settlement fails reporting and the cash penalties regimes, will go ahead as planned.In the U.K., on June 23, 2020, the Government confirmed that would enableit will not implement the tracing of terrorists through financial movements and disruptCSDR Settlement Discipline. U.K. firms will continue to apply the sources of revenue for terrorist organizations by targeting their capacity to raise funds. These proposed amendments were included in a final version of the 4MLD issued byexisting
industry-led
framework.On February 8, 2022, the EU Parliament inCommission announced a decision to extend equivalence for U.K. central counterparties (“CCPs”) until June 30, 2025. The equivalence will apply from July 2016. In September 2017, additional legislation was implemented1, 2022. At the same time, the EU Commission launched a targeted public consultation and a call for evidence on ways to expand central clearing activities in the U.K. designedEU and improve the attractiveness of EU CCPs in order to combat financial crime includingreduce the Criminal Finances Act. The Act functions as an enhancement and extension of the Proceeds of Crime Act 2002 and, in addition to increasing the powers of authorities in investigating tax evasion, is also designed to make failure by a commercial organization to prevent the facilitation of tax evasion a punishable offence.EU’s overreliance on systemic third-country CCPs.
The Fifth Money Laundering Directive (“5MLD”), came into force in the EU on April 26, 2018 and for implementation by EU Member States by January 10, 2020. Not all Member States have yet been able to implement the changes. However, the U.K. government has enacted the regulations bringing into force the 5MLD and the provisions are contained in the Money Laundering and Terrorist Financing (Amendment) Regulations 2019. The changes impose additional obligations within the financial services sector. 5MLD amends 4MLD, and includes provisions that enhance the required level of transparency around beneficial ownership of corporates
and trusts, tightens some controls relating to Politically-Exposed Persons and high risk third countries and also addresses risks associated with certain technological innovation, particularly virtual currencies.
On October 2018 the 6th Money Laundering Directive (“6MLD”) was approved by the European Parliament and Council. EU member states had until December 3, 2020 to implement this upcoming Directive into national law, whilst regulated entities had a deadline of June 3, 2021.The U.K. has decided to opt out of complying with this further AML Directive as the Government assesses that the domestic legislation is already largely compliant with the Directive’s measures. The 6MLD complements the criminal aspects of the 5MLD and has been introduced to focus on the definition of these crimes and their sanctions. It also gives financial institutions more responsibility in the fight against financial crime and aims to promote the collaboration of member states when tackling money laundering.
The Senior Managers and Certification Regime (“SM&CR”) came into force on March 7, 2016 with the aim of reducing the risk of harm to consumers and strengthening market integrity by making firms, and individuals within those firms, more accountable for their conduct and competence. In July 2018, the U.K. FCA and U.K. PRA published near-final rules extending SM&CR to cover all financial services firms in the U.K. to apply from December 9, 2019. On March 8, 2019, the U.K. FCA announced its final rules on its proposed Directory—a new public register that will enable consumers, firms and other stakeholders to find information on key individuals working in financial services who are not otherwise appointed and publicly registered under the SM&CR. Firms were to submit data on Directory individuals in December 2019, and the Directory was expected to go live in March 2020. However, due to thecurrently under review.now live since March 31, 2021.
COVID-19
pandemic, the implementation date of the directory of certified and assessed persons had been delayed and the Directory is Since 2012, the European Commission sought to establish a modern and harmonized data protection framework across the EU to replace the existing Directive. On May 4, 2016, the official texts of the new EU General Data Protection Regulation (“GDPR”) were published in the EU Official Journal in all the official languages and it came into force on May 25, 2016. GDPR took effect across the EU member states on May 25, 2018. GDPR included a number of important changes to existing data protection legislation including new obligations on data processors, restrictions on the transfer of personal data outside the EEA and the introduction of new concepts such as “accountability” (and related record-keeping), the “right to be forgotten” and a
35
requirement for data breach notifications to the relevant Regulators. Enforcement of GDPR is carried out by both national regulators (for the U.K., the Information Commissioner) and the European Commission, and the regulators also have the power to impose greater fines for any breaches of the data protection requirements of up to 4% of a firm’s global turnover.
The EU Benchmark Regulation (“BMR”) entered into force on June 30, 2016 and has applied in the U.K. since January 1, 2018. Global regulators have imposed fines on firms following attempted manipulation of the London Inter-bank Offered Rate (“LIBOR”), gold and foreign exchange benchmarks, and have taken action against individuals for misconduct related to benchmarks. The objectives of the EU BMR include, but are not limited to: (i)improving governance and controls over the benchmarking process to ensure that administrators avoid/manage conflicts of interest, (ii)improving the quality of input data and methodologies used by benchmark administrators, (iii)ensuring that contributors to benchmarks and the data they provide are subject to adequate controls, and (iv)protecting consumers and investors through greater transparency and adequate rights of redress.
Furthermore, in November 2019, the EU BMR was amended to include two new types of “climate benchmarks”—‘Paris-Aligned’ Benchmarks (“PABs”) and Climate Transition Benchmarks (“CTBs”). Theare currentlywere still subject to a public consultation and a number of important details are subject to these delegated acts, ESMA issued a ‘No Action Letter’ encouraging EU national regulators not to force these ‘Level 1’ requirements until these delegated acts are finalized. The Delegated Acts were finalized and published on December 3, 2021.
Low-Carbon
Benchmarks Regulation introduced the requirement (under Article 13 of the BMR) that administrators of benchmarks (save interest rate and foreign exchange benchmarks) must provide an explanation of how the key elements of their benchmark methodologies reflect ESG factors. The requirements are to be complied with by April 30, 2020. However, since the draft regulatory technical standards In addition, interest rate benchmarks including, among others, the London Interbank Offered Rate (“LIBOR”), the Euro Interbank Offered Rate (EURIBOR)(“EURIBOR”), the Euro Overnight Index Average (EONIA)(“EONIA”) and certain other Interbank Offered Rates (“IBORs”) are being reformed.
The U.K. is due to make the transition from LIBOR to Sterling Overnight Index Average (“SONIA”) by the end of 2021 although certain interim milestones have been extended due to the
COVID-19
pandemic. To avoid disruption to legacy contracts that reference the1-,
3-
and6-month
sterling and Japanese yen LIBOR settings, on September 30, 2021 the U.K. FCA announced that it will require the LIBOR benchmark administrator to publish these settings under a ‘synthetic’ methodology, based on term risk-free rates, for the duration of 2022. These six LIBOR settings will be available only for use in some legacy contracts, and are not for use in new business.In the Eurozone,€STR €STR (Euro Short Term Rate) is set to gradually replace the Euro Overnight Index Average (EONIA) and serve as a fallback for the Euro Interbank Offered Rate (EURIBOR)(“EURIBOR”). EONIA will effectively be pegged against€STR €STR until January 3, 2022, when EONIA ceases to apply.
On July 22, 2020, the U.K. Government published a policy statement extending the transitional period for third-country benchmarks under the U.K. BMR from December 31, 2022 to December 31, 2025, thus allowing U.K. firms to continue using benchmarks provided by administrators located outside the U.K. in new financial contracts and instruments without these benchmarks being registered with the FCA until
end-2025.
On October 21, 2020, the U.K. Government published a policy statement making amendments to BMR to allow for the orderly winding down of LIBOR, including providing new powers for the U.K. Financial Conduct Authority (“FCA”). The proposed framework in the policy document allows the FCA to take an appropriate course of action to direct a change in the methodology of a critical benchmark and extend its publication, for a limited time period, for those contracts that face insurmountable barriers to transition from LIBOR (Tough Legacy Contracts). The FCA consulted on its proposal to use two new powers relating to the use of critical
36
benchmarks that are being wound down. The powers are part of a wider package of amendments to the BMR in the Financial Services Act 2021, intended to ensure that the FCA has the appropriate regulatory powers to help reduce risk in the wind-down period before LIBOR ceases permanently. The final Statements of Policy were published in September 29, 2021 (Statement of Policy on the FCA’s power under Article 23C BMR and Statement of Policy on the FCA’s power under Article 21A BMR).
In the U.K. as a follow up to the Fair and Effective Markets Review (established by the Chancellor of the Exchequer), the Fixed Income, Currencies and Commodities (“FICC”) Markets Standards Board (“FMSB”) was established in 2015 as a private sector response to the conduct problems revealed in global wholesale FICC markets after the financial crisis. The function of the FMSB is to help raise standards of conduct in global wholesale markets by producing voluntary Standards and other guidance in areas of uncertainty that are developed by the membership and designed to illustrate best practices to all market participants. These Standards are intended to reduce the continuing uncertainty about acceptable practices in opaque and unregulated areas, which is a hazard for FMSB members, as well as other market participants. The Standards published to date cover topics including the new issue process, binary options for the commodities markets, reference price transactions for the fixed income markets and secondary market trading error compensation. The published Standards do not have legal or regulatory force and do not replace existing legislation; rather, they are intended to supplement the rules already in place. The Standards are implemented by way of FMSB member firms, including Nomura International plc, making an adherence statement on an annual basis.
U.K.-EU
memorandum of understanding (“MoU”) establishing a framework for regulatory cooperation in financial services have concluded. Among other things, the MoU will establish a JointU.K.-EU
Financial Regulatory Forum to serve as a platform to facilitate dialogue on Regulatory Capital Rules
Japan
The FIEA requires that all Financial Instruments Firms (Category I) (“Financial Instruments Firms I”), a category that includes NSC and NFPS, ensure that their capital adequacy ratios do not fall below 120% on a
non-consolidated
basis. The FIEA also requires Financial Instruments Firms I to file monthly reports regarding their capital adequacy ratios with the Commissioner of the FSA or the Director-General of the appropriate Local Finance Bureau, and also to disclose their capital adequacy ratios to the public on a quarterly basis. In addition, if the capital adequacy ratio of a Financial Instruments Firm I falls below 140%, it must file a daily report with the authorities. The FIEA provides for actions which the Prime Minister, through the Commissioner of the FSA or the Director-General of the appropriate Local Finance Bureau, may take if any Financial Instruments Firm I fails to meet the capital adequacy requirement. More specifically, if the capital adequacy ratio of any Financial Instruments Firms I falls below 120%, the Commissioner of the FSA or the Director-General of the appropriate Local Finance Bureau may order the Financial Instruments Firm I to change its business conduct, to deposit its37
property in trust, or may issue any other supervisory order that such authorities deem necessary and appropriate to protect the interests of the general public or investors. If the capital adequacy ratio of a Financial Instruments Firm I falls below 100%, the authorities may take further action, including the issuance of orders to temporarily suspend its business and the revocation of its registration as a Financial Instruments Firm I under the FIEA.
Under the FIEA and regulations thereunder, the “capital adequacy ratio” means the ratio of adjusted capital to a quantified total of business risks. Adjusted capital is defined as net worth less illiquid assets. Net worth mainly consists of stated capital, additional
paid-in
capital, retained earnings, reserves for securities transactions, certain allowances for doubtful current accounts, net unrealized gains/losses in the market value of investment securities, and subordinated debt. Illiquid assets generally includenon-current
assets, certain deposits and advances and prepaid expenses. Business risks are divided into three categories: (i) market risks (i.e., risks of asset value changes due to decline in market values and other reasons), (ii) counterparty risks (i.e., risks of delinquency of counterparties and other reasons) and (iii) basic risks (i.e., risks in carrying out daily business activities, such as administrative problems with securities transactions and clerical mistakes), each quantified in the manner specified in a rule promulgated under the FIEA.The FSA reviewed the FIEA and regulations thereunder in line with Basel 2.5 framework and the revised regulations for Basel 2.5 were implemented at the end of December 2011. Market risks increased significantly as a result of the Basel 2.5 rule implementation.
We closely monitor the capital adequacy ratio of NSC and NFPS on a continuous basis. Since the introduction of the capital adequacy requirement in Japan in 1989, we have at all times been in compliance with all appropriate requirements. We believe that we will continue to be in compliance with all applicable capital adequacy requirements for the foreseeable future.
As discussed above, the FSA amended the FIEA and introduced new rules on consolidated regulation and supervision of securities companies on a consolidated basis on April 1, 2011 to improve the stability and transparency of Japan’s financial system and ensure the protection of investors. Following introduction of these rules, NSC was designated as a Special Financial Instruments Firm, following which we have been designated as a Final Designated Parent Company. As such, we are required to calculate consolidated regulatory capital adequacy ratio according to the FSA’s “Establishment of standards on sufficiency of capital stock of a final designated parent company and its subsidiary entities, etc. compared to the assets held thereby” (2010(2010 FSA Regulatory Notice No. 130; “Capital“Capital Adequacy Notice on Final Designated Parent Company”). Accordingly, since our designation as a Final Designated Parent Company in April 2011, we now calculate our Basel rule-based consolidated regulatory capital adequacy ratio according to the Capital Adequacy Notice on Final Designated Parent Company.
The FSA also amended the FIEA to include reporting on consolidated regulatory capital for the Final Designated Parent Companies, effective April 1, 2011. We are subject to this reporting requirements as well as the capital adequacy requirements described above.
The Capital Adequacy Notice on Final Designated Parent Company has been revised to be in line with Basel 2.5 and Basel III, and we have calculated a Basel
III-based
consolidated capital adequacy ratio since the end of March 2013. Basel 2.5 includes significant changes in the method of calculating market risk and Basel III includes redefinition of capital items for the purpose of requiring higher levels of capital and expansion of the scope of credit risk-weighted assets calculation.If our capital ratios fall to the minimum level required by the FSA, our business activities may be impacted. However, these ratios are currently at well capitalized levels. We have met all capital adequacy requirements to which we are subject and have consistently operated in excess of the FSA’s capital adequacy requirements. Subject to future developments in regulatory capital regulations and standards, there has been no significant change in our capital ratios which management believes would have material impact on our operations.
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The Basel Committee has issued a series of announcements regarding a broader program to strengthen the regulatory capital framework in light of weaknesses revealed by the financial crises, as described in “” under Item 5.B of this annual report. The Capital Adequacy Notice on Final Designated Parent Company is expected to incorporate the series of rules and standards in line with the schedule proposed by the Basel Committee.
Consolidated Regulatory Capital Requirements
At the
G-20
summit in November 2011, the Financial Stability Board (“FSB”) and the Basel Committee announced the list of global systemically important banks(“G-SIBs”)
and the additional requirements to theG-SIBs
including the recovery and resolution plan. The FSB also announced the group ofG-SIBs
will be updated annually and published by the FSB each November. Since November 2011, we have not been designated as aG-SIB.
On the other hand, the FSB and the Basel Committee were asked to work on extending the framework forG-SIBs
to domestic systemically important banks(“D-SIBs”)
and the Basel Committee developed and published a set of principles on the assessment methodology and the higher loss absorbency requirement forD-SIBs.
In December 2015, the FSA identified us as aD-SIB
and required additional capital charge of 0.5% after March 2016, with3-year
transitional arrangement.Overseas
In the U.S., Nomura Securities International, Inc. (“NSI”) is registered as a broker-dealer under the Securities Exchange Act of 1934 and is a futures commission merchant with the Commodity Futures Trading Commission (“CFTC”). NSI is also regulated by self-regulatory organizations, such as the Financial Industry Regulatory Authority (“FINRA”) and the Chicago Mercantile Exchange Group. NSI is subject to the SEC’s Uniform Net Capital Rule (“Ruleis subject to Ruleregistered with the Commodity Futures Trading Commission (“CFTC”) as a Swap Dealer on October 6, 2021 and registered with the Securities and Exchange Commission (“SEC”) as a Security Based Swap Dealer on November 1, 2021. NGFP calculates capital under SEC rule15c3-118a-1and applies Appendix F. NGFP is required to maintain net capitalCFTC rule 23.101 and requires the greater of $20,000,000, in accordance with2% of the SEC.SEC risk margin amount or 2% of the CFTC risk margin amount. Another U.S. subsidiary, Instinet, LLC (“ILLC”) is a broker-dealer registered with the SEC and is a member of FINRA. Further, ILLC is an introducing broker registered with the CFTC and a member of the National Futures Association and various other exchanges. ILLC is subject to Rule20192021 and 2020,2022, NSI, NGFP and ILLC were in compliance with relevant regulatory capital related requirements.
15c3-1”)
and other related rules, which require net capital, as defined under the alternative method, of not less than the greater of $1,000,000 or 2% of aggregate debit items arising from client transactions. NSI is also subject to CFTC Regulation 1.17 which requires the maintenance of net capital of 8% of the total risk margin requirement, as defined, for all positions carried in client accounts and nonclient accounts or $1,000,000, whichever is greater. NSI is required to maintain net capital in accordance with the SEC, CFTC, or other various exchange requirements, whichever is greater. Another U.S. subsidiary, Nomura Global Financial Products Inc. (“NGFP”) is registered as an OTC Derivatives Dealer under the Securities Exchange Act of 1934. NGFP 15c3-1
which requires the maintenance of minimum net capital, as defined under the alternative method, equal to the greater of $1,000,000, 2% of aggregate debit items arising from client transactions, or the CFTC minimum requirement. Under CFTC rules, ILLC is subject to the greater of the following when determining its minimum net capital requirement: $45,000 minimum net capital required as a CFTC introducing broker; the amount of adjusted net capital required by a futures association of which it is a member; and the amount of net capital required by Rule15c3-1(a).
As of March 31, In Europe, Nomura Europe Holdings plc (“NEHS”) is subject to consolidated regulatory supervision by the Prudential Regulation Authority (“U.K. PRA”). as a U.K. Parent Financial Holding Company. The regulatory consolidation is produced in accordance with the requirements established under the Financial Services and Markets Act 2000, U.K. Capital Requirements DirectiveRegulations and the Capital Requirements Regulation which came into effect on January 1, 2014.PRA Rulebook. Nomura International plc (“NIP”), the most significant of NEHS’ subsidiaries, acts as a securities brokerage and dealing business. NIP is also regulated by the U.K. PRA and has minimum capital adequacy requirements imposed on it on a standalone basis. As a
non-U.S.
swap dealer and securities based swap dealer NIP is also subject to the regulations of the CFTC and SEC under the Dodd Frank Act. In addition, Nomura Bank International plc (“NBI”), another39
subsidiary of NEHS, is also regulated by the U.K. PRA on a standalone basis andbasis. NEHS also has a number of European domiciled subsidiaries including Nomura Financial Products Europe GmbH (“NFPE”), a Nomura subsidiary domiciled in Germany which is regulated by the German regulator (“BaFin”). and is subject to the EU Capital Requirements Regulation and local German regulations and Banque Nomura France (“BNF”), a Nomura subsidiary domiciled in France which is regulated by the French regulator (“ACPR”) and is also subject to the EU Capital Requirements Regulation and local French regulations. As of March 31, 20192021 and 2020,2022, NEHS, NIP, NBI, NFPE and NFPEBNF were in compliance with relevant regulatory capital related requirements.
In Asia, Nomura International (Hong Kong) Limited (“NIHK”) and Nomura Singapore Ltd (“NSL”) are regulated by their local respective regulatory authorities. NIHK is licensed by the Securities and Futures Commission in Hong Kong to carry out regulated activities including dealing and clearing in securities and futures contracts, advising on securities, futures contracts and corporate finance and wealth management. Activities of NIHK, including its branch in Taiwan, are subject to the Securities and Futures (Financial Resources) Rules which require it, at all times, to maintain liquid capital at a level not less than its required liquid capital. Liquid capital is the amount by which liquid assets exceed ranking liabilities. Required liquid capital is calculated in accordance with provisions laid down in the Securities and Futures (Financial Resources) Rules. NSL is a licensed merchant bank with an Asian Currency Unit (“ACU”) license governedregulated by the Monetary Authority of Singapore (“MAS”). NSL carries out its ACU regulated activities including, among others, securities brokerage and dealing business. NSL is regulated and has minimum capital adequacy requirements imposed on it on a standalone basis by the MAS in Singapore. NIHK and NSL have always been compliant with relevant regulatory capital related requirements.
In addition, certain of our other subsidiaries are subject to various securities and banking regulations, and the capital adequacy requirements established by the regulatory and exchange authorities of the countries in which those subsidiaries operate. We believe that each such subsidiary is, and will in the foreseeable future be, in compliance with these requirements in all material respects.
Management Challenges and Strategies
Management vision
As a global financial services group, we continue to seek to deliver value-added products and services to our clients globally. Given the diversification of its products and services, as well as the multifaceted nature and expansion of global business, enhancing risk management is essential for us.
In response to the U.S. Prime Brokerage Event in 2021, we immediately launched a thorough review of our business management processes as well as our procedures and organizational structure. Based on this review, we analyzed a number of areas, such as how we manages our business in the current environment, communication and coordination across departments, and allocation of management resources. In light of this, we have taken steps to further enhance our risk management including revamping our organizational structure and realigning headcount in related departments.
We see enhanced risk management as an urgent key management project and one of theCOVID-19pandemic has had, and will continue top priorities for us over the medium to have, significant impacts in global economy and financial markets. Nomura’slong-term. Our senior management priority is shiftingcommitted to adjust to this situation and focusing onleveraging the following urgent challenges in the course of determining its overall impacts:
“Quantitative and strengthened the infrastructure to keep up business as usual during widespread work-from-home arrangements.Qualitative Disclosures about Market, Credit and Other Risk—Risk Management”
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Medium-to
① The Group’s growth strategy for the global outbreak of theCOVID-19pandemic, it is likely that our future business platform including trends in real economy and capital markets will be dramatically changing while new types of client behavior and need will be generated. Workstylesustainable improvement of our employees will be also shifting. To adapt to these changes, Nomura is formulating a growth strategy to achieve sustainable enhancement in corporate value and revising its operating model.
For more information on the strategies in each division, please refer to the challenges and strategies in each division.
Strengthening Investment Management Division
We newly established our private clients (alternative investments, including commercial assets such as private equity, private debt and infrastructure). We will also strengthen our approach to private offering as well as public offeringsInvestment Management Division, in April 2021, aiming to meet customer needs.
our management strategy: Expanding our scope of business from public to private. This division aims not only to expand and strengthen traditional investment products but also to provide investment opportunities into private section such as alternative assets. Nomura Babcock & Brown Co., Ltd, which conducts aircraft leasing and was not under any business division before the establishment of Investment Management Division, was consolidated into Investment Management as a key company under the new division. By bringing together diverse expertise under the same structure, we aim to deliver even greater added value.
Shifting to asset consulting business
We are shifting to an asset consulting business for domestic individual customers. We provide asset consulting services that we believe provide preferable
medium-to
long-term solutions for our clients. We support clients in increasing their assets, and we aim to increase the fee income we receive as a result by increasing assets under custody. The steady increase in income from stock assets such as investment trusts, for which fees such as management and administration expenses are charged for assets under management, contributes to more stable revenue stream for us. We also established our Chief Investment Office (“CIO”) Group in July 2020 to provide consulting services similar to those already offered towards institutional investors, to individual investors. In November 2020, we introduced the CIO services for discretionary investment services to improve operational performance. We are also promoting the introduction of “Nomura Navigation”, a tool that helps clients manage their portfolios and enhance their consulting services. Besides, in addition to the existing commission system which requires payment every time a transaction is made, we are introducing a new fee system that allows customers to select a level fee based on level of client assets. In April 2022, all of our branches began offering this product. In addition to ensuring quality through CIO services, we are building a structure that provides advice that aligns the interests of customers and our company more closely than ever before.Diversifying Wholesale revenues
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Our digital transformation efforts are directly linked to our competitiveness with other financial institutions in the future, and we will continue to promote a wide range of initiatives based on our strategy in order to provide highly convenient services to our clients and respond to diversifying needs. We also believe that our people are the source of the added value created by the Nomura Group even in a world of increasing where digitization and digitalization are advanced. We will continue to strengthen the development of our human resources with the qualities required for the upcoming era, such as consulting capabilities that make full use of bothand virtual communications. In addition, we established “Digital Company” in April 2022, aiming to strengthen collaboration in the digital domain across group entities, including in our international operations, while also bolstering initiatives in focus areas. Our efforts to promote digitalization are as follows.
face-to-face
Streamline and enhance internal operations
Retail Division utilizes “Remote Consulting” which is original system supporting sales representatives. In addition, we continue our effortshave launched an internal Digital IQ program to ensure our internal productivity through further investment in IT infrastructure, and digitalization, which should be effective even when working from home.support digital
e-learning
Attracting a new client base
We have developed a platform to deliver services for young people and the working generations, who we attach importancehave not provided with many products and services, by utilizing digital technology. We expand to utilize LINE Securities Corporation established together with LINE Financial Corporation, OneStock which is an asset management smartphone application, FINTOS! which is an investment information application.
Participation in Digital Asset Business
Nomura and BOOSTRY Co., Ltd., which is a joint venture between Nomura and Nomura Research Institute, Ltd. have provided technical infrastructure and other support on digital asset bond and digital bond offerings. This is the first bond offering using blockchain technology by a Japanese issuer. Through our approach to the creationdigital asset business, we aim to provide new added value that goes beyond the boundaries of corporateconventional finance by utilizing advanced technologies and our network. Going forward, we will continue to build a system that can respond to diversifying client needs through products and services in the digital asset value giving due considerationchain, from origination to financial soundness,custody. In addition, in order to systematically accelerate such efforts, we established “Digital Company Strategy Department” and thereby improving ROE.“Digital Asset Strategy Office”, effective April 1, 2022.
③ Initiatives for Sustainability
Our management vision for 2025 is to achieve sustainable growth by helping resolve social issues, and we have integrated sustainability into our management strategy. We now make decisions on sustainability issues at through our Sustainability Committee, which comprises Executive Management Board members, and therefore, we are multiple globalresponding to our own sustainable development issues and other broad social issues in a timely manner. Sustainability promotion in Nomura has value in two ways. One is to support the sustainability efforts of our clients and various stakeholders. The second is to promote the sustainability efforts in our own operations.
Supporting the sustainability efforts of our clients and stakeholders
Our core role as a financial regulations that Nomura Group must comply with,services group is to support clients through the flow of funds and among these,capital. We believe it is important to strengthen our functions to promote the sustainable circulation of
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capital regulations established by Basel Committeeunderwriting green bonds and social bonds issued by companies and financial institutions, providing strategic advisory services such as M&A advisory, and by developingBanking Supervision have a direct impactfinancial education, based on the way we conduct business. Fornew guidelines of education. In response to this reason,policy, we have setappointed Executive in charge of Financial Education, and will continue to strengthen initiatives to improve the financial literacy of society as a targetwhole.
ESG-related
funds as investments and providing them to individual investors. In addition, we will take advantage of our comprehensive strengths in providing solutions to social issues by leveraging the functions we have cultivated over many years, including support for business succession, promoting innovation in the fields of regional revitalization, agriculture and medical care, and our expertise and knowledge in the field of research and analysis. Since the 1990s, we have been providing financial and economics education programs in Japan for elementary and junior high school students as well as adults. Starting from April 2022, Japanese high schools have classes on Our company’s own efforts
We have committed to achieve net zero greenhouse gas (“GHG”) emissions for our own operations by 2030, and to transition attributable GHG emissions from our lending and investment portfolios to align with pathways achieving net zero by 2050. To materialize these initiatives, we joined themaintaining a common equity Tier 1 ratio (CET1 ratio) of at least 11%. For a detailed description of our CET1 ratiosustainable environment and its calculation, see under Item 5.B. “Consolidated Regulatory Capital Requirements” While conducting businesssociety in cooperation with an awareness of capital efficiency through the use of ROE described above,stakeholders regarding how we are also mindful of our financial soundness and is mindful of the buffer in the event of severe market stress. At a meeting held in May 2020, the Board of Directors discussed certain aspects of our business strategies.will address social issues.
Net-Zero
Banking Alliance (“NZBA”) in 2021. We participate in and endorse numerous initiatives besides NZBA to further promote the realization of The challenges and strategies in each division are as follows:
Retail Division
Based on the basic concept of “Enriching clients by responding to their asset concerns”concerns about assets”, our Retail Division aims to become a financial institution that is required byfulfilling the needs of many people. We will continue working on improving the skills of our Partners,clients, and enhance our wide range of products and services in order to accurately respond to diversifying clients’ asset issues such as;as inheritance or anxiety about lack of funds after retirement. Furthermore, in order to deliver products and services to clients who have never used Nomura,In addition, we will expand ourenhance online services and strengthen our remote consulting structureservice through call centers and other functions.contact centers.
Investment Management Division
is responsible for expanding product offerings and improving our services to meet the diversifying investment needs of our clients in the broad asset management business. By combining our expertise in traditional assets such as stocks and bonds to alternative assets such as private equity, we provide added value and offer advanced services and solutions to meet the diverse needs of our clients. In our investment trustthe public market business, we aim to strengthen existing businesses and improve through digital transformation. In the private market business, we will pursue providing clients with a diverse range of investment opportunitiesstrive to meet investors’ various needs, focusing on asset formation and retirement layers, where asset management needs are expected to increase further in the future. In our investment advisory business, we will aim to increase assets under management and expand our product offerings as investors’ demand for alternative investments increases. We will also seek to execute inorganic strategies (such as alliances and equity investments) to expand our product offerings and client base worldwide by providing value-added investment services.
base.Wholesale Division
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Global Markets aims to provide uninterrupted liquidity to our clients while positioning portfolio to weather a possible economic downturn, keeping tightreinforcing risk control and discipline.governance. Additionally, opportunisticallywe aim to further diversify our business portfolio, reinforce global connectivity and cross-sell to leverage our global platform and client franchise, pursue growth opportunities in areas like asset-sidesuch as structured financing and solution business / structured finance as well as client coverageinternational wealth management business, and continue to make progress in digitizationbuild on the strength of our Flow business and improved efficiency, differentiation.businesses.
Risk Management and Compliance, etc.
We recognized substantial losses during the years ended March 31, 2021 and 2022 as a result of the U.S. Prime Brokerage Event (as described in Item 11. “”).
Quantitative and Qualitative Disclosures about Market, Credit and Other Risk
To address this issue, we have launched an extensive internal remediation and enhancement program (The “Risk Management Enhancement Program” or “RMEP”) in order to identify specific issues which may have contributed to the loss and areas of improvement in order to strengthen our risk management.
As a part of RMEP, we have clearly defined in our Risk Appetite Statement that all executives and employees must actively engage in risk management through our Three Lines of Defense framework and have provided extensive training to all executives and employees affected by RMEP.
With regard to compliance, we will continue to focus on improving the management structure to comply with local laws and regulations in the countries where we operate. We also continue to review our internal systems and rules so that all executive management and employees can work autonomously with high ethical standards.
In March 2019, there was an incident that information related to the listing and delisting criteria for the upper market under review by the Tokyo Stock Exchange was handled improperly from the viewpoint of ensuring fair and sound markets in the course of communicating information at Nomura Securities Co., Ltd. In May the same year, Japan’s Financial Services Agency issued a business improvement order against Nomura Holdings and Nomura Securities for their management control framework relating to information management. We have taken this matter very seriously, and are reviewing our organizational structures and developing rules. In addition, in order to ensure not only compliance with laws and regulations, but also that all executive managementdirectors, officers and employees are able to act in accordance with social norms, Nomura Group haswe have established the “Nomura Group Code of Conduct” as guidelines for actionactions to be taken, and is developing an effective internal management systemthrough associated trainings and other measures, we are working to promote appropriate actions (Conduct)(“Conduct”) based on the Code of Conduct.
At the ‘Nomura Founding Principles and Corporate Ethics Day’ held in every August, all directors, officers and employees reaffirm the lessons learned from past incidents and renew our determination to prevent similar incidents then to maintain and gain the trust society places in us; discussions are held regarding the proper way to conduct after looking back on past incidents, and a pledge is made to comply with the Code of Conduct.In order for us to be able to respond to the changing demands of society, the Code of Conduct is regularly reviewed to constantly examine ourselves and to ensure that our thinking aligns with society’s norms. In March 2022, we added a new item “Managing Risks Appropriately” to instill a robust risk culture within Nomura Group, and articulated in writing that each executive and employee will deepen one’s knowledge and understanding on risks, properly recognize and evaluate them, and actively engage in risk management to prepare for all possible contingencies.
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(3) Human Capital Initiatives
① Nomura’s Approach to Human Resources
Philosophy of “Human resources is the greatest asset”
With the belief that our people are our most valuable asset, we consistently aim to becreate a financial services group that society needsworkplace where our employees can build long-term careers and play an active role in our clients trust.business and are implementing various initiatives to enhance the physical and mental health of our employees.
Talent Management Based on Corporate Philosophy
We regard “We help to enrich society through our expertise in capital markets” as our social mission in our corporate philosophy. To realize this mission, we have set “Entrepreneurial Leadership,” “Teamwork” and “Integrity” as being core values that must be maintained at all times, and established the Nomura Code of Conduct to provide clear guidelines for connecting our corporate philosophy with these values. As talent management embodies these needs, we are working on the following various initiatives to foster and embed these values in our employees.
We are working on the following Initiatives to foster values of “Entrepreneurial Leadership,” “Teamwork,” and “Integrity” that must be maintained at all times.
| Main Objective | Examples of Initiatives | |
| Securing diverse human resources | • Internship and Nomura passport We offer internship programs in Nomura Securities which offer students the opportunity to experience working in various areas of our business, and to deepen their knowledge of the financial services industry. In addition to this, students also learn about the roles and purpose of the securities industry. This helps students broaden their knowledge and experience and gives them the opportunity to think about their future careers. We have also introduced an employment program called “Nomura Passport” for students pursuing doctoral degrees in the fields of science and technology in order to identify talent with expertise in such areas as AI development, data science and digitalization which will be increasingly critical to our business going forward. | |
| Providing and supporting growth opportunities and developing professional human resources | • Training In addition to training programs for new hires, training programs in Japan mainly consist of group training and on-the-job |
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| Main Objective | Examples of Initiatives | |
in our Tokyo headquarters for managers of our overseas entities. In addition, we have established a self-improvement support system, consisting of a large number of external training and correspondence courses as well as voluntary group training on weekends at our company training facilities, in order to support the development of our employees on a voluntary basis. • Study-abroad program Over the past 60 years, more than 600 Nomura Securities employees have studied at business and law schools in more than 20 countries and regions, mainly in the United Kingdom and the United States. • Global Mobility (International Transfer) In addition to transferring from Japan to overseas, we actively provide opportunities for employees of our overseas entities to transfer to Japan to develop employees with experience of working in different countries and cultures. • Digital IQ program As we enter an era in which digital-related knowledge determines the competitiveness of global financial institutions, we have introduced the “Digital IQ” Program. This program is an online program for all of our global employees to improve their knowledge and skills. | ||
| Proper evaluation and treatment | • Compensation system based on the pay-for-performance Based on our principle that employees are paid based on their performance, we ensure our compensation policies and practices are sound and competitive from a market perspective. This helps us realize our business strategy and generate long-term profits, with the aim of achieving sustainable growth and improving enterprise value over the medium to long term. • 360-degree evaluationWe conduct a “360 degree evaluation” in which relevant managers are evaluated by colleagues other than their immediate superiors. This leads to further skill development and behavioral change for managers. • ERCC goal We have introduced a standard ERCC goal, which set goal from the perspectives of ethics, risk management, compliance, and conduct. We aim to raise the awareness of the Code for each employee and to instill the concept of the Code throughout our business, thereby creating an environment in which employees can speak out. | |
| Employee engagement | • Employee engagement survey We conduct the “Nomura Group Employee Survey” to monitor, maintain and improve the status of communication across our |
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| Main Objective | Examples of Initiatives | |
business and to understand the level of our employee satisfaction. As part of the most recent survey conducted during the year ended March 31, 2022, many employees responded positively to the question, “I am proud to work for the firm.” | ||
| Fostering a risk culture | • Fostering a risk culture We have made it an objective for all of our global employees to foster a risk culture within our business by encouraging respectful relationships (Respect), reporting to their manager (Escalate), and performing constructive checks (Challenge). | |
| DE & I, Health &Productivity Management, and provision of equal opportunities and prohibition of discrimination | • DE&I As we have employees from about 90 different nationalities across our business, the development of human resources that respect diversity is one of our most important issues. These diverse human resources are our greatest asset. We believe that through mutual recognition and cooperation with others who have different backgrounds and values, we can meet the diverse needs of our clients and provide higher value-added services. Based on this philosophy, our Sustainability Committee, chaired by the Group CEO, discuss and promote global strategies about DE&I. In addition, voluntary employee networks are promoting diversity issues in our offices globally. We are working on these issues from both a top-down andbottom-up approach. In accordance with the enactment of the “The Act on Promotion of Women’s Participation and Advancement in the Workplace” in Japan, we have formulated an action plan focused on the promotion of women’s participation and advancement and we are implementing various programs to achieve this.• Health & Productivity Management In July 2016, we adopted the Nomura Health & Productivity Declaration Statement as part of our efforts led by the Group Chief Health Officer (CHO) to maintain and improve the health of our employees. Starting in the year ended March 31, 2021, in order to work toward our management vision of “Achieve sustainable growth by helping resolve social issues,” we are communicating to all employees our goal that “All people who work at Nomura will not simply be healthy, but also physically, mentally and socially sound (overall well-being).” • Provision of equal opportunities and prohibition of discrimination For each and every employee to be active and successful in utilizing their capabilities and personal strengths, we provide equal opportunities in recruitment, development, evaluation, promotion and assignment. As part of the “Respect diversity and human rights” Section of the Nomura Group Code of Conduct, we state that “We promote equal opportunity and do not discriminate on grounds such as nationality, race, sex, gender identity, sexual orientation, creed, social status, or existence of or nonexistence of disability.” |
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C. Organizational Structure.
The following table lists the Company and its significant subsidiaries and their respective countries of incorporation.incorporation as of March 31, 2022. Indentation indicates the principal parent of each subsidiary. Proportions of ownership interest include indirect ownership.
Name | Country/Region | Ownership Interest | ||||||||
(%) | ||||||||||
Nomura Holdings, Inc. | Japan | — | ||||||||
Nomura Securities Co., Ltd. | Japan | 100 | ||||||||
Nomura Asset Management Co., Ltd. | Japan | 100 | ||||||||
The Nomura Trust & Banking Co., Ltd. | Japan | 100 | ||||||||
Nomura Babcock & Brown Co., Ltd. | Japan | 100 | ||||||||
Nomura Capital Investment Co., Ltd. | Japan | 100 | ||||||||
Nomura Investor Relations Co., Ltd. | Japan | 100 | ||||||||
Nomura | Japan | 100 | ||||||||
Nomura Research & Advisory Co., Ltd. | Japan | 100 | ||||||||
Nomura Business Services Co., Ltd. | Japan | 100 | ||||||||
Nomura | Japan | 100 | ||||||||
Nomura Institute of Capital Markets Research | Japan | 100 | ||||||||
Nomura Healthcare Co., Ltd. | Japan | 100 | ||||||||
Nomura Agri Planning & Advisory Co., Ltd. | Japan | 100 | ||||||||
Nomura Financial Products & Services, Inc. | Japan | 100 | ||||||||
Nomura Institute of Estate Planning | Japan | 100 | ||||||||
N-Village Co., Ltd. | Japan | 100 | ||||||||
Nomura Capital Partners Co., Ltd. | Japan | 100 | ||||||||
Nomura Mezzanine Partners Co., Ltd. | Japan | 100 | ||||||||
Corporate Design Partners Co., Ltd. | Japan | 100 | ||||||||
Nomura Kagayaki Co., Ltd. | Japan | 100 | ||||||||
Nomura Asia Pacific Holdings Co., Ltd. | Japan | 100 | ||||||||
Nomura International (Hong Kong) Limited | Hong Kong | 100 | ||||||||
Nomura Singapore Limited | Singapore | 100 | ||||||||
Nomura Securities Singapore Pte. Ltd. | Singapore | 100 | ||||||||
Nomura Australia Limited | Australia | 100 | ||||||||
PT Nomura Sekuritas Indonesia | Indonesia | 96 | ||||||||
Nomura Asia Investment (Fixed Income) Pte. Ltd. | Singapore | 100 | ||||||||
Nomura Asia Investment (Singapore) Pte. Ltd. | Singapore | 100 | ||||||||
Capital Nomura Securities Public Co., Ltd. | Thailand | 99 | ||||||||
Nomura Financial Advisory and Securities (India) Private Limited | India | 100 | ||||||||
Nomura Holding America Inc. (1) | U.S. | 100 | ||||||||
Nomura Securities International, Inc. | U.S. | 100 | ||||||||
Nomura Corporate Research and Asset Management Inc. | U.S. | 100 | ||||||||
Nomura Derivative Products Inc. | U.S. | 100 | ||||||||
Nomura America Mortgage Finance, LLC | U.S. | 100 | ||||||||
Nomura Global Financial Products, Inc. | U.S. | 100 | ||||||||
NHI Acquisition Holding, Inc. | U.S. | 100 | ||||||||
Instinet Incorporated (1) | U.S. | 100 | ||||||||
Nomura Europe Holdings plc | U.K. | 100 | ||||||||
Nomura International plc | U.K. | 100 | ||||||||
Nomura Bank International plc | U.K. | 100 | ||||||||
Nomura Financial Products Europe GmbH | Germany | 100 | ||||||||
Banque Nomura France | France | 100 | ||||||||
Nomura Bank (Luxembourg) S.A. | Luxemburg | 100 | ||||||||
Nomura Bank (Switzerland) Ltd. | Switzerland | 100 | ||||||||
Nomura Europe Finance N.V. | The Netherlands | 100 | ||||||||
Nomura European Investment Limited | U.K. | 100 | ||||||||
Nomura Asia Investment (India Powai) Pte. Ltd. | Singapore | 100 | ||||||||
Nomura Services India Private Limited | India | 100 | ||||||||
Nomura International Funding Pte. Ltd. | Singapore | 100 | ||||||||
Nomura Orient International Securities Co., Ltd. | China | 51 | ||||||||
| (1) | Following an internal reorganization effective April 1, 2022, Instinet Incorporated and its group entities are now subsidiaries of Nomura Holding America Inc. |
48
D. Property, Plants and Equipment.
Our Properties
As of March 31, 2020,2022, our principal head office is located in Tokyo, Japan and occupies 1,007,309861,463 square feet of office space. Our other major offices in Japan are our Osaka branch office, which occupies 125,184131,470 square feet, our Nagoya branch office, which occupies 82,91489,567 square feet, and the head office of NAM in Tokyo, which occupies 178,218128,715 square feet.
As of March 31, 2020,2022, our major offices outside Japan are the head offices of NIP located in London, which occupies 239,777250,616 square feet, the New York head office of Nomura Securities International, Inc., which occupies 194,770188,957 square feet, and the offices of Nomura International (Hong Kong) Limited located in Hong Kong which occupies 146,389111,837 square feet. We lease most of our overseas office space.
As of March 31, 2020,2022, the major office of Nomura Services India Private Limited, our specialized service company in Mumbai, India, occupies 562,038217,668 square feet.
As of March 31, 2020,2022, the aggregate book value of the land and buildings we owned was ¥121¥99 billion, and the aggregate book value of equipment we owned, including communications and data processing facilities, was ¥36¥32 billion.
As of March 31, 2022, we plan to construct a new facility as follows:
Name | Location | Segment | Nature of the plan | Estimate of the amount of expenditures (million yen) | Amount of expenditures already paid (million yen) | Method of financing | Date of start of the activity | Estimated date of completion of the activity | ||||||||||||
| NHI | Tokyo | Other | Nihonbashi 1-Chome Naka Area Type 1 Urban Area Redevelopment Project | 120,000 | 8,267 | Own funds | December 2021 | March 2026 | ||||||||||||
Item 4A. Unresolved Staff Comments
We are a large accelerated filer as defined in Rule20202022 and which remain unresolved as of the date of the filing of this annual report with the Commission.
12b-2
under the Securities Exchange Act of 1934. There are no written comments which have been provided by the staff of the Securities and Exchange Commission regarding our periodic reports under that Act not less than 180 days before the end of the fiscal year ended March 31, Item 5. Operating and Financial Review and Prospects
A. Operating Results.
This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of factors, including, but not limited to, those under Item 3.D “Risk Factors” and elsewhere in this annual report.
Business Environment
The performance of Japan’sglobal economy deteriorated substantiallyexperienced repeated slowdowns in the latter half of the fiscal year ended March 31, 2020. Real gross domestic product (GDP) grew by 2.1% on2022 in response toquarter-on-quarterannualized basis great extent, particularly in April-June 2019, but then flattened out with 0.0% growth in July-September. The country’s economy then saw two consecutive quarters of substantial contraction, with real GDP shrinking by 7.3% in October-December 2019 and by 3.4% in January-March 2020. Exports from Japan were weak since the startcountries of the fiscal year, as global economic growth had already started slowing as a result of U.S.-China trade friction. Up throughWest that were at the July-September quarter, however, capital spending remained at a high level, buoyed by labor-saving investmentsforefront in administering43
flare-ups
in theCOVID-19
pandemic. Even so, economic activity resumed to aCOVID-19
vaccination programs. The pandemic
49
had a lingering impact on emerging market economies in particular, causing sluggishness in production and distribution that, when combined with thecompanies dealing with labor shortages, and consumer spending and housing investment trended upward thanks in partthe economic recovery, led to rush demand ahead of the consumption tax rate hike that went into effect in October 2019. Once the consumption tax rate was raised, however, consumer spending slumped on the backlash from the last-minute demand ahead of the tax hike, and corporate capital spending followed consumer spending sharply downward. There were signs early in 2020 that the decline in economic activity was coming to a halt, but the global spread ofCOVID-19then started putting fresh downward pressure on economic activity. China intentionally suppressed economic activity in Wuhan and many other cities as a way to contain the pandemic, and European countries and the United States soon followed suit. In Japan, the national government issued a call to the populace in February 2020 to minimize movements outside the home and to consider canceling events with a nationwide audience,increasingly severe supply constraints and, in March 2020, the Tokyo Metropolitan Government called on residents of the prefectureturn, rising inflation. Despite initial expectations that it would not to venture outside the home onnon-urgentbusiness. Restrictions on international arrivalslast, this rise in inflation became protracted, and immigration were strengthened around the same time. The number of visitors to Japan dropped off steeply as a result decliningthe central banks of major countries and regions around the world became more inclined to execute monetary policy tightening sooner than they had previously expected to, or to raise their policy interest rates in larger increments. This led to greater concern over rising interest rates in financial markets. Global equity markets stayed in an overall uptrend, albeit punctuated by morenumerous downward adjustments prompted by worries over sustained inflation and rising market interest rates. China’s economic growth slowed, in part due to curbs on production executed in the interest of stepping up the pace of decarbonization and tightening controls and regulations under China’s “common prosperity” drive.
pent-up
demand unleashed by Japan’s economy performed sluggishly. The country suffered repeated90%year-on-yearon March, the countries of the West to roll out vaccinations—and exports, consumer spending,supply constraints ended up causing a slump in exports. However, in spite of lackluster performance in the real economy and various other sortsrising costs (including in the form of economic activity all fell off sharply.
flare-ups
in the pandemic—in part because it was slower than Executive Summary
«Overall results of business»
We recognized net revenue of ¥1,363.9 billion for the fiscal year ended March 31, 2019 declined steeplyyear-on-year,hit by both U.S.-China trade friction and the COVID-19 pandemic. The U.S.-China trade issues blunted global economic growth, and among manufacturers, earnings deteriorated in materials industries and processing industries alike. In2022, a numberdecrease of industry sectors, profits were also dragged down by the recording of unrealized valuation losses on equity securities, forced by changes in the market valuations of companies’ shareholdings. However, some industries did manage to achieve strong earnings performance, including the software industry, where the amusementsub-sectorbenefitted from strong sales of new game consoles and the system applicationsub-sectorbenefitted from corporate investment in labor-saving technology. Estimated recurring profits at major companies (those in the Russell/Nomura Large Cap Index) with fiscal years ending in March 2020 fell by 18.7%year-on-year,for the first profit decline in four years. Estimated return on equity (ROE) for the fiscal year ending in March 2020 came to 6.7%, significantly worse than the ROE result of 9.2% for the previous fiscal year.
Non-interest
expenses decreased by (1)
for the fiscal year ended March 31, 2021. We have decided to pay a dividend of ¥5¥14 per share to shareholders of record as of March 31, 2020.2022. As a result, the total annual dividend was ¥20will be ¥22 per share.
«Management’s assessment of events that had a particular impact on the results of the year»
In the Retail Division, the shift towards the asset consulting business is progressing. In the fiscal year ended March 31, 2022, there was an increase in stock and consulting revenues due to a net increase in investment trusts and discretionary investment balances. However, because of
flare-ups
in theCOVID-19
pandemic, changes to the monetary policy of central banks, and heightened geopolitical risks, clients’ risk aversion attitude became prominent, and profits from flows such as stock and investment trust transactions decreased.In the Investment Management Division, investment income decreased by market factors. On the other hand, there was an inflow of funds for the fourth consecutive quarter, and in December of last year, the balance of assets under management reached a record high. Thereby operating income mainly from management fees increased.
Profits in the Wholesale Division increased. In Investment Banking, the advisory business, particularly overseas, performed well, resulting in the highest earnings in the past six years. In Global Markets, loss of Equity arising from transactions with a US client decreased.
(Note):
| 1. | Diluted net income attributable to Nomura Holdings’ shareholders per share. |
50
Also, the fiscal year ended March 2022 was affected by a variety of temporary factors. Continuing from the fiscal year ended March 2021, we recognized loss of ¥65.4 billion arising from transactions with a US client during the first quarter, part of which is estimated to be recoverable resulting in recognition of profit of ¥14.7 billion in the third and fourth quarters. In addition, approximately ¥62 billion related to legacy transactions in the U.S. from before the global financial crisis (2007–2008) was recognized including legal expenses as well as certain transactions intended to mitigate future losses. On the other hand, we recognized income of approximately ¥79.0 billion from the sale of a part of its shares held in Nomura Research Institute, Ltd, which is affiliated company, in the first and fourth quarters.
The fiscal year ended March 2022 was more challenging than the previous fiscal year. However, we believe that the results of ourdesignated net income per share (EPS)almost completed the accounting treatment of legacy transactions in the Americas from before the global financial crisis, freeing up management resources to be allocated to growth areas.
medium-to
long-term initiatives were steady. At the end of the fiscal year, we have «Capital policy and shareholder returns»
We plan to maintain appropriate capital ratios and aim for sustainable growth through optimal capital allocation. As preparatory steps to achieve our management vision, while controlling cost levels, we are investing for growth to realize our management strategy of expanding the scope of our business from public into private markets, in order to balance investment and shareholder returns, and maximize shareholder value by improving productivity and expanding revenue sources.
We strive to pay dividends using a consolidated payout ratio of 30 % of each semi-annual consolidated earnings as a key management indicatorindicator. Additionally we aim for a total payout ratio, which includes dividends and workedshare buybacks, of at least 50 %. The total amount of shareholder returns for each fiscal year is determined by comprehensively taking into account trends in the regulatory environment in Japan and overseas, including the strengthening of Basel regulations, as well as the consolidated results of our business divisions. For further details of our dividend policy, refer to continuously improve this indicator. However, with the establishment of the new structure in April 2020, we have decided to use return on equity (ROE) as a management indicatorItem 5.B. “”.
Liquidity and to pursue sustainable business reforms. At the same time, we have set a pretax profit target of ¥280 billion for the Retail, AssetCapital Resources
—
Capital Management and Wholesale businesses in fiscal 2023.
—
Dividends
«Summary by Segment»
In our Retail Division, net revenue for the year ended March 31, 20202022 decreased by 0.9%11.1% from the previous fiscal year to ¥336.4¥328.0 billion.1.1%2.8% to ¥286.9¥268.7 billion. As a result, income before income taxes decreased by 0.1%35.8% to ¥49.4¥59.2 billion. Based on the basic concept of “Enriching clients by responding to their asset concerns”, our Retail Division has been working on consulting business in close cooperation with each customerclient with the aim of becoming “the most trusted partner”. InDuring the current fiscal year, salespurchases of stocks and investment trusts and equities were sluggish due to the decline in customers’ investment mindset against the backdrop of the unstableuncertain market environment, which was exacerbatedbut we expanded our recurring revenue assets by consulting on the COVID-19 pandemic. However, signs of changes are beginning to appear, as we have made a transition to the sales structure that meets the needsentire assets of our clients. In addition
Non-interest
expenses decreased by We are also enhancing our initiatives to Asset Management,reach the working generation by strengthening our remote consulting through contact centers. Going forward, not only providing support for asset management, we will strive to enhance our products and services such as; Real Estate, Inheritance, or Succession, which aims to provide various solutions for a variety of client issues, such as real estate and advicesinheritance. In addition, we will aim to clients’ entire asset. We are also takingestablish a new business model by combining both digital approaches in addition toface-to-faceand human touch service.approaches, to provide services to a wider range of clients. We will further strengthen our digital approach.
In our AssetInvestment Management Division, net revenue for the year ended March 31, 20202022 decreased by 5.4%9.3% from the previous fiscal year to ¥92.6¥148.0 billion.0.3%6.0% to ¥63.8¥76.5 billion. As a result, income before income taxes decreased by 15.8%21.4% to ¥28.8¥71.5 billion. InThe Investment Management Division, which was established on April 1, 2021, has been broadly engaged in the asset management business while expanding its product lineup and improving its services to meet the diversifying investment trustneeds of clients. During the fiscal year under review, the balance of assets under management remained high, due to inflows of funds which continued for four consecutive quarters, resulting in an increase in business the inflow to ETFs, fundsrevenue that contribute to asset formation and funds for defined contribution pension plans for the conceptis relatively stable in nature.
Non-interest
expenses increased by 51
On the other hand, there was an outflowalthough Nomura Capital Partners recorded profit from valuation and sale of funds such as emerging markets funds. In the investment advisory business, although we saw cash inflow mainly fromshares of its investee company following its initial public pension funds, there was an outflow mainly from high yieldoffering, a decrease in gain related products in overseas. As a result, revenue decreased as assets under management decreased from the end of the previous fiscal year as of March 31, 2020, and due to the valuation of American Century Investments resulted in a year on year decrease in investment gain and loss. As part of our strategic partner.efforts to expand our private market products, Nomura SPARX Investment, a joint venture with the SPARX Group Co., Ltd. was established and started managing an investment corporation that invests in unlisted companies.
In addition, in collaboration with Japan Search Fund Accelerator Co., Ltd., we established Japan Search Fund Platform Investment Limited Partnership, which specializes in investments for business succession, and completed the first close of fund raising.
In our Wholesale Division, net revenue for the year ended March 31, 20202022 increased by 16.8%1.7% from the previous fiscal year to ¥648.6¥703.1 billion.decreasedincreased by 16.6%0.2% to ¥556.4628.6 billion. As a result, income before income taxes increased by 15.8% to ¥74.5 billion. In Global Markets, we continued to reinforce our core strengths across regions, enhanced risk control and governance and focused on providing uninterrupted service and liquidity to our clients, as they rebalance their portfolio amidst highly volatile markets. We delivered steady performance, deepening engagement with clients across flow as well as structured financing and solution business. In Investment Banking, client activity was active and, we were able to execute large domestic as well as cross-border business restructurings and industry-wide consolidations by carefully responding to our clients’ needs. In addition to M&A advisory and underwriting businesses for both equity and debt, the expansion of the acquisition finance market also led to robust growth for the fiscal year. The number of deals executed by Nomura Greentech increased and contributed to revenue, while we were able to deepen our alliance with Wolfe Research LLC and have started joint branding which has led to an increase in deal numbers.
Non-interest
expenses Progress on Key Performance Indicators
«Management Indicators»
One component of Nomura’s management vision is “achieving sustainable growth by solving social issues” and we have set Return on Equity (ROE) as one of the most important indicators towards the fiscal year ending March 2025. After the introduction of the Corporate Governance Code in Japan, the importance of management having an awareness of capital costs has increased among Japanese companies. In addition, since the financial services industry is subject to stringent financial capital regulations, more effective use of capital is required. As a result, we believe that the optimal allocation of management resources will become even more important for our company in the future. Accordingly, beginning in the year ended March 31, 2021, we adopted ROE as a key management indicator, which management uses to track the progress of our sustainable business transformation. At the Board of Directors meeting held in May 2020,
in-depth
discussions were held on the management indicators and basic concepts described as follows.Return on equity
ROE is defined and calculated as net income attributable to NHI shareholders divided by total NHI shareholders’ equity. We believe that disclosure of ROE is useful to investors in that it helps them to assess business conditions and effective use of capital to enhance corporate value.
We have set a medium to long-term ROE target of
8-10%
for the fiscal year end March 2025, reflecting the cost of capital demanded by our company. However, ROE may be of limited use in that it does not necessarily reflect financial soundness. In order to avoid the excessive pursuit of capital efficiency with the aim of improving ROE at the expense of financial soundness, we attach importance to the creation of corporate value, giving due consideration to financial soundness, and thereby improving ROE. ROE for the year ended March 31, 2022 decreased to 5.1% from 5.7% for the prior fiscal year.Common equity Tier1 ratio (CET1 ratio)
In addition to ROE, there are multiple global financial regulations that we must comply with, including capital regulations established by Basel Committee on Banking Supervision as interpreted and implemented by the FSA which have a direct impact on the way we conduct business. For this reason, we have set a target of maintaining a common equity Tier 1 ratio (CET1 ratio) of at least 11%, so that we will take into consideration the financial soundness including certain buffer against severe market stress. Our CET1 ratio increased to 17.22% as of March 31, 2022 from 15.81% as of March 31, 2021. For further details, on the key capital requirements we must follow, see Item 5.B. “—”.
Consolidated Regulatory Capital Requirements
«Indicators by Business Segment»
In addition to the Group KPIs, our management also uses certain divisional specific KPIs to monitor and assess performance of the divisions.
Retail
We have adopted the following key indicators in the Retail Division to quantify the outcomes of those efforts and monitor our business: Recurring revenue assets; Consulting-related revenue; and Net inflows of cash and securities; Active clients; so that our management will be able to monitor the progress and target sustainable and further business growth. We believe that disclosure of those indicators is useful to investors in that it helps them to assess the progress of the division’s client-facing activities as well as digest and understand our growth potential.
Year ended March 31 (Billions of Japanese Yen) | ||||||||||||||||||||
2020 | 2021 | % Change from previous year | 2022 | % Change from previous year | ||||||||||||||||
Recurring revenue assets | ¥ | 15,300 | ¥ | 18,200 | 19 | % | ¥ | 19,600 | 7.7 | % | ||||||||||
Consulting-related revenue | ¥ | 14.9 | ¥ | 13.4 | (10.1 | )% | ¥ | 16.7 | 24.6 | % | ||||||||||
Net inflows of cash and securities | ¥ | (429.4 | ) | ¥ | 887.7 | — | % | ¥ | 351.5 | (60.4 | )% | |||||||||
Active clients | 1,071,000 | 1,019,000 | (4.9 | )% | 1,009,000 | (1.0 | )% | |||||||||||||
Recurring revenue assets
Recurring revenue assets are defined by adding related loans to the total amount of assets, such as investment trusts and discretionary investments, for which management fees and other fees are charged. The total amount of Loan is reported by ¥614.3 billion within Loans receivable in the consolidated balance sheets as of March 31, 2022. Recurring revenue assets such as investment trusts and discretionary investments grew driven by the market rally and net inflows into investment trusts, contributing to higher recurring revenue.
Consulting-related revenue
Consulting-related revenue consists of revenues that are not derived from purchase and sales of securities, but revenue related to service such as insurance and real estate. For the current fiscal year, pension insurance and business insurance contracts and M & A contracts contributed to the increase compared to the fiscal year ended March 2021.
Net inflows of cash and securities
Net inflows of cash and securities is defined and calculated as cash and securities inflows minus outflows, excluding regional financial institutions. Net inflows of cash and securities was ¥92.2 billion.over ¥351.5 billion in annual total which combined with market factors. Retail client assets was ¥122.1 trillion as of March 31, 2021.
53
Active clients
Active clients are defined as a number of clients who transacted at least one purchase since April 1 (accumulated). Growth in the number of Active clients exceeded previous fiscal year results until the 3rd Quarter but slowed down due to the U.S. monetary policy and heightened geopolitical risks.
Investment Management Division
We have set the balance of assets under management as a key performance indicator for the Investment Management Division. The businesses in the Investment Management Division generally earn management and similar fees based on the amount of assets under management, meaning that revenue trends for these businesses tend to follow trends in the amount of assets under management, and our management considers this measure to be effective in monitoring the progress of these businesses. We also believe that it is an important indicator of how well investment products are received by investors.
Year ended March 31 (Trillions of Japanese Yen) | ||||||||||||||||||||
2020* | 2021 | % Change from previous year | 2022 | % Change from previous year | ||||||||||||||||
Assets under management | ¥N/A | ¥ | 64.7 | — | % | ¥ | 67.9 | 4.9 | % | |||||||||||
| * | No comparable data available for 2020. |
The balance of assets under management includes the net balance (after deducting duplications) of assets under management (gross) of Nomura Asset Management, Nomura Corporate Research and Asset Management, and Wealth Square, as well as third-party investments in funds managed by Nomura SPARX Investment, Nomura Mezzanine Partners, Nomura Capital Partners, and Nomura Research & Advisory.
During the fiscal year ended March 31, 2022, the balance of investment trusts increased mainly through bank channels and ETFs. In Global Markets,addition to large inflows from domestic pension funds in the investment advisory services, for our overseas business, funds flowed into Nomura Corporate Research and Asset Management’s high yield bond strategy. In addition to these inflows, the balance increased due to market factors.
Wholesale
Starting April 2019, we have adopted aratio and a revenue to modified RWA ratio as additional key performance indicators in our Wholesale Division. We believe that disclosure of these indicators would be useful for investors to assess progress in terms of cost and resource efficiency. Additionally, we use these indicators to evaluate our business based on progress on cost savings initiatives and return on resources.
cost-to-income
Year ended March 31 | ||||||||||||||||||||
2020 | 2021 | % Change from previous year | 2022 | % Change from previous year | ||||||||||||||||
Cost-to-income | 86 | % | 91 | % | 5.8 | % | 89 | % | (2.2 | )% | ||||||||||
Revenue/modified RWA | 6.5 | % | 6.4 | % | (1.5 | )% | 7.0 | % | 9.4 | % | ||||||||||
Cost-to-income
Theratio for the Wholesale Division is calculated by dividing2020, we focused31, 2022 compared to the prior fiscal year primarily due to less impact from the U.S. Prime Brokerage Event on core strengthsrevenue and cost during the year. However, there was some effect on costs due to international hiring in each regionline with strategic
cost-to-income
non-interest
expenses for the Division for a given reporting period by net revenue generated by the Division for the same period, calculated consistently, in each case, with our segment presentation for the division. It is monitored at a divisional level to track operating margins for the business. The ratio decreased during the year ended March 54
initiatives and stabilizing our performance, following strategic repositioning of business undertaken in April 2019. As a result, we delivered steady performance in both Fixed Income and Equities and continuedmarket-driven base salary adjustments. The ratio increased during the year ended March 31, 2021 compared to remain engaged with our clients, despite geopolitical uncertainties leading to challenging market environment for most partthe prior fiscal year because of the impact of the U.S. Prime Brokerage Event on revenue and cost for the year. ForHowever, the negative impact was mitigated by other increases in revenue as well as
pro-active
cost management after adjusting for the impact of pay for performance and other revenue driven costs.Revenue to modified Risk Weighted Asset (RWA) ratio
The revenue to modified RWA ratio for the Wholesale division is calculated by dividing net revenue generated by our Wholesale Division for a given reporting period (in the case of net revenue for the Wholesale Division for periods shorter than a full fiscal year, on an annualized basis) by the average balance of modified RWA used by the Wholesale Division for the same period. The Revenue to modified RWA ratio is monitored to track our revenue earning capacity against risk resources deployed. Modified RWA is the total of (i) average daily risk-weighted assets as calculated and presented under Basel regulations as interpreted and implemented by the FSA and (ii) an adjustment equal to the regulatory adjustment to common equity tier1 (CET1) capital calculated and presented under Basel regulations as interpreted and implemented by the FSA divided by our internal minimum capital ratio target of 12.5%. (daily average for the accounting period), which we use to estimate the amount of deductions to RWA generated by the division. The revenue to modified RWA as we calculate and present it may differ from similarly titled measures presented by our competitors due to the approach and methodologies used for calculation. Our credit risk-weighted assets and operational risk equivalent assets are calculated 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. The conversion of Wholesale RWA to modified RWA is based on adjustments reflecting our internal minimum capital ratio target. Moreover, the usefulness of this ratio may be limited in that the adjustment applied to RWA, which is intended to capture the appropriate amount of RWA to attribute to our businesses (as opposed to RWA as calculated for regulatory capital purposes), is an estimate incorporating our internal risk tolerance; however, this adjustment may not appropriately reflect the actual regulatory capital impact of the charged assets that are used by our business. Revenue to modified RWA increased for the year ended March 31, 2022 compared to the prior fiscal year primarily because of less impact from the U.S. Prime Brokerage Event on revenue as well as increased Investment Banking revenue. The impact of the global IB business performed stably untilU.S. Prime Brokerage Event was the third quarter, butmain reason why the decline in customer activity and inratio declined for the market caused byyear ended March 31, 2021 compared to the spread ofCOVID-19in the fourth quarter affected business results. On the other hand, the diversification of revenue opportunities that we have worked on mainly overseas has progressed. Europe, Middle East and Africa (“EMEA”) and Asiaex-Japan(“AEJ”) revenues from M&A and DCM (debt-related fundraising business) exceeded the previousprior fiscal year’s revenue respectively. We provide custom-made solutions by carefully grasping the needs of our clients.year.
55
Results of Operations
Overview
The following table provides selected consolidated statements of income information for the years ended March 31, 2018, 20192020, 2021 and 2020.2022.
Millions of yen, except percentages | ||||||||||||||||||||
Year ended March 31 | ||||||||||||||||||||
2018 | 2019 | % Change from previous year | 2020 | % Change from previous year | ||||||||||||||||
Non-interest revenues: | ||||||||||||||||||||
Commissions | ¥ | 373,313 | ¥ | 293,069 | (21.5 | )% | ¥ | 308,805 | 5.4 | % | ||||||||||
Fees from investment banking | 101,663 | 101,521 | (0.1 | ) | 103,222 | 1.7 | ||||||||||||||
Asset management and portfolio service fees | 245,616 | 245,519 | — | 238,202 | (3.0 | ) | ||||||||||||||
Net gain on trading | 442,885 | 342,964 | (22.6 | ) | 356,609 | 4.0 | ||||||||||||||
Gain (loss) on private equity and debt investments | (869 | ) | 1,007 | — | (93 | ) | — | |||||||||||||
Gain (loss) on investments in equity securities | 2,683 | (6,983 | ) | — | (14,726 | ) | — | |||||||||||||
Other | 221,192 | 81,057 | (63.4 | ) | 165,991 | 104.8 | ||||||||||||||
Total Non-interest revenues | 1,386,483 | 1,058,154 | (23.7 | ) | 1,158,010 | 9.4 | ||||||||||||||
Net interest revenue | 110,486 | 58,616 | (46.9 | ) | 129,819 | 121.5 | ||||||||||||||
Net revenue | 1,496,969 | 1,116,770 | (25.4 | ) | 1,287,829 | 15.3 | ||||||||||||||
Non-interest expenses | 1,168,811 | 1,154,471 | (1.2 | ) | 1,039,568 | (10.0 | ) | |||||||||||||
Income (loss) before income taxes | 328,158 | (37,701 | ) | — | 248,261 | — | ||||||||||||||
Income tax expense | 103,866 | 57,010 | (45.1 | ) | 28,894 | (49.3 | ) | |||||||||||||
Net income (loss) | ¥ | 224,292 | ¥ | (94,711 | ) | — | % | ¥ | 219,367 | — | % | |||||||||
Less: Net income attributable to noncontrolling interests | 4,949 | 5,731 | 15.8 | 2,369 | (58.7 | ) | ||||||||||||||
Net income (loss) attributable to NHI shareholders | ¥ | 219,343 | ¥ | (100,442 | ) | — | % | ¥ | 216,998 | — | % | |||||||||
Return on equity | 7.9 | % | (3.7 | ) % | 8.2 | % | ||||||||||||||
Millions of yen, except percentages | ||||||||||||||||||||
Year ended March 31 | ||||||||||||||||||||
2020 | 2021 | % Change from previous year | 2022 | % Change from previous year | ||||||||||||||||
Non-interest revenues: | ||||||||||||||||||||
Commissions | ¥ | 308,805 | ¥ | 376,897 | 22.1 | % | ¥ | 332,344 | (11.8 | )% | ||||||||||
Fees from investment banking | 103,222 | 108,681 | 5.3 | 149,603 | 37.7 | |||||||||||||||
Asset management and portfolio service fees | 238,202 | 230,047 | (3.4 | ) | 269,985 | 17.4 | ||||||||||||||
Net gain on trading | 356,609 | 310,040 | (13.1 | ) | 368,799 | 19.0 | ||||||||||||||
Gain (loss) on private equity and debt investments | (93 | ) | 12,734 | — | 30,768 | 141.6 | ||||||||||||||
Gain (loss) on investments in equity securities | (14,726 | ) | 14,053 | — | 5,446 | (61.2 | ) | |||||||||||||
Other | 165,991 | 208,317 | 25.5 | 152,832 | (26.6 | ) | ||||||||||||||
Total Non-interest revenues | 1,158,010 | 1,260,769 | 8.9 | 1,309,777 | 3.9 | |||||||||||||||
Net interest revenue | 129,819 | 141,103 | 8.7 | 54,113 | (61.7 | ) | ||||||||||||||
Net revenue | 1,287,829 | 1,401,872 | 8.9 | 1,363,890 | (2.7 | ) | ||||||||||||||
Non-interest expenses | 1,039,568 | 1,171,201 | 12.7 | 1,137,267 | (2.9 | ) | ||||||||||||||
Income before income taxes | 248,261 | 230,671 | (7.1 | ) | 226,623 | (1.8 | ) | |||||||||||||
Income tax expense | 28,894 | 70,274 | 143.2 | 80,090 | 14.0 | |||||||||||||||
Net income | ¥ | 219,367 | ¥ | 160,397 | (26.9 | )% | ¥ | 146,533 | (8.6 | )% | ||||||||||
Less: Net income attributable to noncontrolling interests | 2,369 | 7,281 | 207.3 | 3,537 | (51.4 | ) | ||||||||||||||
Net income attributable to NHI shareholders | ¥ | 216,998 | ¥ | 153,116 | (29.4 | )% | ¥ | 142,996 | (6.6 | )% | ||||||||||
Return on equity | 8.2 | % | 5.7 | % | 5.1 | % | ||||||||||||||
Net revenue
Commissions
Commissions
Fees from investment banking
Asset management and portfolio service fees
Net gain on trading
Net gain on trading
Gain (loss) on investments in equity securities
Gain (loss) on investments in equity securities
56
long-term basis in order to promote existing and potential business relationships.decreased from the year ended March 31, 2021 to the year ended March 31, 2022, primarily due to American Century Investments related gain/loss.
Other
Net revenue
Commissions
Commissions
increased from the year ended March 31, 20192020 to the year ended March 31, 20202021 primarily due to an increase in commissions received from the distribution of investment trusts and brokerage commissions received from equity and equity-relatedequity related products.increased from the year ended March 31, 20192020 to the year ended March 31, 20202021 primarily due to an increase in revenue from M&A advisory services and our solution services associated with fund raising.decreased from the year ended March 31, 20192020 to the year ended March 31, 20202021 mainly due to decreases in response to the decrease in assets under management.fee ratios.increaseddecreased from the year ended March 31, 20192020 to the year ended March 31, 2020,2021, primarily driven by an increase in revenue fromdue to the Fixed Income business.U.S. Prime Brokerage Event.also included total gainslosses of ¥17.5¥13.4 billion attributable to changes in Nomura’s own creditworthiness with respect to derivative liabilities primarily due to a wideningtightening of Nomura’s credit spreads particularly aswhich were temporarily widened at the end of March 2020 due to theincreased from the year ended March 31, 2020 to the year ended March 31, 2021, primarily due to a result of theCOVID-19pandemicmarket appreciation during the fiscal year.year ended March 31, 2021.includes both realized and unrealized gains and losses on investments in equity securities held for operating purposes which are our investments in unaffiliated companies, which we hold on a long-term basis in order to promote existing and potential business relationships.increased from the year ended March 31, 20192020 to the year ended March 31, 2020,2021, primarily due to the realized recognizing a¥73,293 million by the partial sale of Nomura’s investment in ordinary shares of Nomura Research Institute, Ltd.
Fees from investment banking
Asset management and portfolio service fees
Net gain on trading
Net gain on trading
COVID-19
pandemic.Gain (loss) on investments in equity securities
Gain (loss) on investments in equity securities
Other
non-recurring
gain of Net interest revenue
Net interest revenue
Net interest revenue
Non-interest
revenuesNet
interest revenue
Net interest revenue
Non-interest
expensesof ¥81,372 million attributable to the Wholesale Division.¥47.7 billion
Non-interest
expensesWe are subject to a number of different taxes in Japan and have adopted the consolidated tax filing system permitted under Japanese tax law. The consolidated tax filing system only imposes a national tax. Nomura’s domestic effective statutory tax rate was approximately 31% for the fiscal year ended March 31, 2018, 20192020, 2021 and 2020,2022, respectively. Our foreign subsidiaries are subject to the income taxes of the countries in which they
57
operate, which are generally lower than those in Japan. The Company’s effective statutory tax rate in any one year is therefore dependent on our geographic mix of profits and losses and also on the specific tax treatment applicable in each location.
Income tax expense
Income tax expense
Income tax expense
Results by Business Segment
Net gain (loss) related to economic hedging transactions, a part of our Other segment.
Business Overview
Segment and geographic information
Segment and geographic information
Retail
Operating Results of Retail division, our sales activities focus on providing consultation services and investment proposals to clients for which we receive commissions and fees. Additionally, we receive fees from asset management companies in connection with administration services we provide in connection with investment trust certificates that we distribute. We also receive agent commissions from insurance companies for the insurance products we sell as an agent.
Millions of yen | ||||||||||||||||||||
Year ended March 31 | ||||||||||||||||||||
2020 | 2021 | % Change from previous year | 2022 | % Change from previous year | ||||||||||||||||
Non-interest revenue | ¥ | 329,983 | ¥ | 366,271 | 11.0 | % | ¥ | 324,642 | (11.4 | )% | ||||||||||
Net interest revenue | 6,376 | 2,538 | (60.2 | ) | 3,343 | 31.7 | ||||||||||||||
Net revenue | 336,359 | 368,809 | 9.6 | 327,985 | (11.1 | ) | ||||||||||||||
Non-interest expenses | 286,926 | 276,480 | (3.6 | ) | 268,745 | (2.8 | ) | |||||||||||||
Income before income taxes | ¥ | 49,433 | ¥ | 92,329 | 86.8 | % | ¥ | 59,240 | (35.8 | )% | ||||||||||
58
Millions of yen | ||||||||||||||||||||
Year ended March 31 | ||||||||||||||||||||
2018 | 2019 | % Change from previous year | 2020 | % Change from previous year | ||||||||||||||||
Non-interest revenue | ¥ | 406,295 | ¥ | 331,743 | (18.3 | )% | ¥ | 329,983 | (0.5 | )% | ||||||||||
Net interest revenue | 6,613 | 7,737 | 17.0 | 6,376 | (17.6 | ) | ||||||||||||||
Net revenue | 412,908 | 339,480 | (17.8 | ) | 336,359 | (0.9 | ) | |||||||||||||
Non-interest expenses | 309,771 | 289,990 | (6.4 | ) | 286,926 | (1.1 | ) | |||||||||||||
Income before income taxes | ¥ | 103,137 | ¥ | 49,490 | (52.0 | )% | ¥ | 49,433 | (0.1 | )% | ||||||||||
Net revenue
Net revenue
Non-interest
expensesNon-interest
expensesThe following table shows the breakdown of Retail20192020, 2021 and 2020.2022.
non-interest
revenues for the year ended March 31, Millions of yen | ||||||||||||
Year ended March 31 | ||||||||||||
2019 | 2020 | % Change from previous year | ||||||||||
Commissions | ¥ | 142,764 | ¥ | 153,170 | 7.3 | % | ||||||
Brokerage commissions | 60,167 | 61,207 | 1.7 | |||||||||
Commissions for distribution of investment trusts | 57,880 | 66,940 | 15.7 | |||||||||
Other commissions | 24,717 | 25,023 | 1.2 | |||||||||
Net gain on trading | 55,829 | 56,756 | 1.7 | |||||||||
Fees from investment banking | 33,981 | 23,239 | (31.6 | ) | ||||||||
Asset management fees | 95,384 | 92,139 | (3.4 | ) | ||||||||
Others | 3,785 | 4,679 | 23.6 | |||||||||
Non-interest revenues | ¥ | 331,743 | ¥ | 329,983 | (0.5 | )% | ||||||
Millions of yen | ||||||||||||||||||||
Year ended March 31 | ||||||||||||||||||||
2020 | 2021 | % Change from previous year | 2022 | % Change from previous year | ||||||||||||||||
Commissions | ¥ | 153,170 | ¥ | 187,678 | 22.5 | % | ¥ | 138,525 | (26.2 | )% | ||||||||||
Brokerage commissions | 61,207 | 92,589 | 51.3 | 67,419 | (27.2 | ) | ||||||||||||||
Commissions for distribution of investment trusts | 66,940 | 68,352 | 2.1 | 43,537 | (36.3 | ) | ||||||||||||||
Other commissions | 25,023 | 26,737 | 6.9 | 27,569 | 3.1 | |||||||||||||||
Net gain on trading | 56,756 | 58,357 | 2.8 | 43,981 | (24.6 | ) | ||||||||||||||
Fees from investment banking | 23,239 | 20,354 | (12.4 | )�� | 19,003 | (6.6 | ) | |||||||||||||
Asset management fees | 92,139 | 88,996 | (3.4 | ) | 109,300 | 22.8 | ||||||||||||||
Others | 4,679 | 10,886 | 132.7 | 13,833 | 27.1 | |||||||||||||||
Non-interest revenues | ¥ | 329,983 | ¥ | 366,271 | 11.0 | % | ¥ | 324,642 | (11.4 | )% | ||||||||||
Commissions
Net gain on trading
Commissions increased from the year ended March 31, 20192020 to the year ended March 31, 2020,2021, primarily due to increases in commissions received from the distribution of investment trusts and brokerage commissions received from equity and equity-related products.Net gain on tradingincreased from the year ended March 31, 2019 to the year ended March 31, 2020, primarily due to an increase in income related to debt securities.decreased from the year ended March 31, 20192020 to the year ended March 31, 2020,2021, primarily due to the absence of large IPO deals as compareddecreases in commissions related to the previous year.debt securities offering.
Fees from investment banking
59
Retail Client Assets
The following table presents amounts and details regarding the composition of Retail client assets as of March 31, 20192021 and 2020.2022. Retail client assets consist of clients’ assets held in our custody and assets relating to variable annuity insurance products.
Trillions of yen | ||||||||||||||||||||
Year ended March 31, 2019 | ||||||||||||||||||||
Balance at beginning of year | Gross inflows | Gross outflows | Market appreciation / (depreciation) | Balance at end of year | ||||||||||||||||
Equities | ¥ | 75.7 | ¥ | 22.5 | ¥ | (21.4 | ) | ¥ | (4.9 | ) | ¥ | 71.9 | ||||||||
Debt securities | 17.9 | 29.2 | (27.2 | ) | (1.1 | ) | 18.8 | |||||||||||||
Stock investment trusts | 9.1 | 2.9 | (2.7 | ) | (0.3 | ) | 9.0 | |||||||||||||
Bond investment trusts | 7.1 | 0.3 | (0.7 | ) | 0.1 | 6.8 | ||||||||||||||
Overseas mutual funds | 1.2 | — | (0.1 | ) | 0.0 | 1.1 | ||||||||||||||
Others | 6.7 | 0.9 | (0.6 | ) | 0.1 | 7.1 | ||||||||||||||
Total | ¥ | 117.7 | ¥ | 55.8 | ¥ | (52.7 | ) | ¥ | (6.1 | ) | ¥ | 114.7 | ||||||||
Trillions of yen | ||||||||||||||||||||
Year ended March 31, 2021 | ||||||||||||||||||||
Balance at beginning of year | Gross inflows | Gross outflows | Market appreciation / (depreciation) | Balance at end of year | ||||||||||||||||
Equities | ¥ | 62.7 | ¥ | 24.4 | ¥ | (24.9 | ) | ¥ | 20.1 | ¥ | 82.3 | |||||||||
Debt securities | 18.4 | 12.3 | (9.9 | ) | (2.7 | ) | 18.1 | |||||||||||||
Stock investment trusts | 7.6 | 3.1 | (3.0 | ) | 2.5 | 10.2 | ||||||||||||||
Bond investment trusts | 7.3 | 1.4 | (0.6 | ) | (0.1 | ) | 8.0 | |||||||||||||
Overseas mutual funds | 1.0 | 0.2 | (0.1 | ) | (0.0 | ) | 1.1 | |||||||||||||
Others | 7.0 | 0.9 | (0.7 | ) | (0.3 | ) | 6.9 | |||||||||||||
Total | ¥ | 104.0 | ¥ | 42.3 | ¥ | (39.2 | ) | ¥ | 19.5 | ¥ | 126.6 | |||||||||
Trillions of yen | ||||||||||||||||||||
Year ended March 31, 2020 | ||||||||||||||||||||
Balance at beginning of year | Gross inflows | Gross outflows | Market appreciation / (depreciation) | Balance at end of year | ||||||||||||||||
Equities | ¥ | 71.9 | ¥ | 12.4 | ¥ | (13.4 | ) | ¥ | (8.2 | ) | ¥ | 62.7 | ||||||||
Debt securities | 18.8 | 29.3 | (27.3 | ) | (2.4 | ) | 18.4 | |||||||||||||
Stock investment trusts | 9.0 | 3.1 | (3.2 | ) | (1.3 | ) | 7.6 | |||||||||||||
Bond investment trusts | 6.8 | 0.9 | (0.5 | ) | 0.1 | 7.3 | ||||||||||||||
Overseas mutual funds | 1.1 | 0.1 | (0.1 | ) | (0.1 | ) | 1.0 | |||||||||||||
Others | 7.1 | 0.8 | (1.0 | ) | 0.1 | 7.0 | ||||||||||||||
Total | ¥ | 114.7 | ¥ | 46.6 | ¥ | (45.5 | ) | ¥ | (11.8 | ) | ¥ | 104.0 | ||||||||
Trillions of yen | ||||||||||||||||||||
Year ended March 31, 2022 | ||||||||||||||||||||
Balance at beginning of year | Gross inflows | Gross outflows | Market appreciation / (depreciation) | Balance at end of year | ||||||||||||||||
Equities | ¥ | 82.3 | ¥ | 19.5 | ¥ | (19.8 | ) | ¥ | (4.5 | ) | ¥ | 77.5 | ||||||||
Debt securities | 18.1 | 15.5 | (13.3 | ) | (2.6 | ) | 17.7 | |||||||||||||
Stock investment trusts | 10.2 | 2.4 | (2.1 | ) | 0.3 | 10.8 | ||||||||||||||
Bond investment trusts | 8.0 | 0.3 | (0.6 | ) | (0.2 | ) | 7.5 | |||||||||||||
Overseas mutual funds | 1.1 | 0.2 | 0.0 | 0.0 | 1.3 | |||||||||||||||
Others | 6.9 | 1.1 | (0.5 | ) | (0.2 | ) | 7.3 | |||||||||||||
Total | ¥ | 126.6 | ¥ | 39.0 | ¥ | (36.3 | ) | ¥ | (7.2 | ) | ¥ | 122.1 | ||||||||
Retail client assets decreased from March 31, 20192021 to March 31, 2020.2022. The balances of our clients’ equity and equity-related products decreased by ¥9.2 trillionincreased from ¥71.9March 31, 2021 to ¥77.5 trillion as of March 31, 2019 to ¥62.7 trillion as of March 31, 2020,2022, mainly due to market depreciation during the disruptions in the Japanese equity market from February 2020 reflecting the effect of the COVID-19 pandemic and increase of net outflows.year. The balances of our clients’ investment trusts decreasedincreased by ¥1.1¥0.3 trillion from ¥16.9¥19.3 trillion as of March 31, 20192021 to ¥15.8¥19.6 trillion as of March 31, 2020.2022.
Retail client assets decreasedincreased from March 31, 20182020 to March 31, 2019.2021. The balances of our clients’ equity and equity-related products decreased by ¥3.8 trillionincreased from ¥75.7March 31, 2020 to ¥82.3 trillion as of March 31, 2018 to ¥71.9 trillion as of March 31, 2019,2021, mainly due to market appreciation during the deterioration of Japanese equity market and increase of net outflows.year. The balances of our clients’ investment trusts decreasedincreased by ¥0.5¥3.4 trillion from ¥17.4¥15.9 trillion as of March 31, 20182020 to ¥16.9¥19.3 trillion as of March 31, 2019.2021.
Investment Management
Operating Results of AssetInvestment Management
Millions of yen | ||||||||||||||||||||
Year ended March 31 | ||||||||||||||||||||
2018 | 2019 | % Change from previous year | 2020 | % Change from previous year | ||||||||||||||||
Non-interest revenue | ¥ | 118,545 | ¥ | 89,607 | (24.4 | )% | ¥ | 85,190 | (4.9 | )% | ||||||||||
Net interest revenue | 8,792 | 8,238 | (6.3 | ) | 7,415 | (10.0 | ) | |||||||||||||
Net revenue | 127,337 | 97,845 | (23.2 | ) | 92,605 | (5.4 | ) | |||||||||||||
Non-interest expenses | 61,167 | 63,660 | 4.1 | 63,833 | 0.3 | |||||||||||||||
Income before income taxes | ¥ | 66,170 | ¥ | 34,185 | (48.3 | )% | ¥ | 28,772 | (15.8 | )% | ||||||||||
Millions of yen | ||||||||||||||||||||
Year ended March 31 | ||||||||||||||||||||
2020 | 2021 | % Change from previous year | 2022 | % Change from previous year | ||||||||||||||||
Non-interest revenue | ¥ | 101,130 | ¥ | 153,523 | 51.8 | % | ¥ | 129,848 | (15.4 | )% | ||||||||||
Net interest revenue | 6,807 | 9,627 | 41.4 | 18,145 | 88.5 | |||||||||||||||
Net revenue | 107,937 | 163,150 | 51.2 | 147,993 | (9.3 | ) | ||||||||||||||
Non-interest expenses | 74,364 | 72,142 | (3.0 | ) | 76,478 | 6.0 | ||||||||||||||
Income before income taxes | ¥ | 33,573 | ¥ | 91,008 | 171.1 | % | ¥ | 71,515 | (21.4 | )% | ||||||||||
Net revenue
Net revenue
Non-interest
expensesNon-interest
expensesThe breakdown of net revenue for Investment Management is as follows.
Millions of yen | ||||||||||||||||||||
Year ended March 31 | ||||||||||||||||||||
2020 | 2021 | % Change from previous year | 2022 | % Change from previous year | ||||||||||||||||
Business revenue (1) | ¥ | 121,495 | ¥ | 111,946 | (7.9 | )% | ¥ | 119,920 | 7.1 | % | ||||||||||
Investment gain/ loss (2) | (13,558 | ) | 51,204 | — | 28,073 | (45.2 | ) | |||||||||||||
Net revenue | ¥ | 107,937 | ¥ | 163,150 | 51.2 | % | ¥ | 147,993 | (9.3 | )% | ||||||||||
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. |
61
The following table presents assets under management of each principal Nomura entity within the AssetInvestment Management Division as of March 31, 20192021 and 2020.2022.
Billions of yen | ||||||||||||||||||||||||
Year ended March 31, 2019 | ||||||||||||||||||||||||
Balance at beginning of year | Adjustment in beginning balance | Gross inflows | Gross outflows | Market appreciation / (depreciation) | Balance at end of year | |||||||||||||||||||
Nomura Asset Management Co., Ltd . | ¥ | 52,381 | ¥ | — | ¥ | 24,988 | ¥ | (23,850 | ) | ¥ | (148 | ) | ¥ | 53,371 | ||||||||||
Nomura Funds Research and Technologies Co., Ltd. | 2,765 | (2,765 | ) | — | — | — | — | |||||||||||||||||
Nomura Corporate Research and Asset Management Inc. | 2,684 | — | 902 | (732 | ) | 157 | 3,011 | |||||||||||||||||
Combined total | 57,830 | (2,765 | ) | 25,890 | (24,582 | ) | 9 | 56,382 | ||||||||||||||||
Shared across group companies | (7,815 | ) | 2,649 | (1,187 | ) | 1,521 | (176 | ) | (5,008 | ) | ||||||||||||||
Total | ¥ | 50,015 | ¥ | (116 | ) | ¥ | 24,703 | ¥ | (23,061 | ) | ¥ | (167 | ) | ¥ | 51,374 | |||||||||
Billions of yen | ||||||||||||||||||||
Year ended March 31, 2021 | ||||||||||||||||||||
Balance at beginning of year | Gross inflows | Gross outflows | Market appreciation / (depreciation) | Balance at end of year | ||||||||||||||||
Nomura Asset Management Co., Ltd . | ¥ | 50,648 | ¥ | 28,675 | ¥ | (27,705 | ) | ¥ | 14,540 | ¥ | 66,158 | |||||||||
Nomura Corporate Research and Asset Management Inc. etc | 2,543 | 906 | (927 | ) | 778 | 3,300 | ||||||||||||||
Combined total | 53,191 | 29,581 | (28,632 | ) | 15,318 | 69,458 | ||||||||||||||
Shared across group companies | (3,860 | ) | (1,169 | ) | 1,431 | (1,194 | ) | (4,792 | ) | |||||||||||
Total | ¥ | 49,331 | ¥ | 28,412 | ¥ | (27,201 | ) | ¥ | 14,124 | ¥ | 64,666 | |||||||||
Billions of yen | ||||||||||||||||||||
Year ended March 31, 2022 | ||||||||||||||||||||
Balance at beginning of year | Gross inflows | Gross outflows | Market appreciation / (depreciation) | Balance at end of year | ||||||||||||||||
Nomura Asset Management Co., Ltd . | ¥ | 66,158 | ¥ | 26,883 | ¥ | (25,549 | ) | ¥ | 2,100 | ¥ | 69,592 | |||||||||
Nomura Corporate Research and Asset Management Inc. etc | 3,300 | 944 | (690 | ) | 313 | 3,867 | ||||||||||||||
Combined total | 69,458 | 27,827 | (26,239 | ) | 2,413 | 73,459 | ||||||||||||||
Shared across group companies | (4,792 | ) | (1,462 | ) | 1,163 | (455 | ) | (5,546 | ) | |||||||||||
Total | ¥ | 64,666 | ¥ | 26,365 | ¥ | (25,076 | ) | ¥ | 1,958 | ¥ | 67,913 | |||||||||
Billions of yen | ||||||||||||||||||||||||
Year ended March 31, 2020 | ||||||||||||||||||||||||
Balance at beginning of year | Adjustment in beginning balance | Gross inflows | Gross outflows | Market appreciation / (depreciation) | Balance at end of year | |||||||||||||||||||
Nomura Asset Management Co., Ltd . | ¥ | 53,371 | ¥ | — | ¥ | 26,098 | ¥ | (25,076 | ) | ¥ | (3,745 | ) | ¥ | 50,648 | ||||||||||
Nomura Corporate Research and Asset Management Inc. | 3,011 | — | 568 | (739 | ) | (351 | ) | 2,489 | ||||||||||||||||
Combined total | 56,382 | — | 26,666 | (25,815 | ) | (4,096 | ) | 53,137 | ||||||||||||||||
Shared across group companies | (5,008 | ) | — | (882 | ) | 1,501 | 577 | (3,812 | ) | |||||||||||||||
Total | 51,374 | — | 25,784 | (24,314 | ) | (3,519 | ) | 49,325 | ||||||||||||||||
The following table presents NAM’s share, in terms of net asset value, of the Japanese publicly offered investment trusts market as of March 31, 2020, 2021 and 2022.
March 31 | March 31 | |||||||||||||||||||||||
2018 | 2019 | 2020 | 2020 | 2021 | 2022 | |||||||||||||||||||
Total of publicly offered investment trusts | 27 | % | 28 | % | 28 | % | 28 | % | 28 | % | 27 | % | ||||||||||||
Stock investment trusts | 25 | % | 26 | % | 26 | % | 26 | % | 26 | % | 25 | % | ||||||||||||
Bond investment trusts | 44 | % | 45 | % | 44 | % | 44 | % | 44 | % | 44 | % | ||||||||||||
(Source) Nomura’s own calculation based on data published by the Investment Trusts Association, Japan.
Investment trust assets included in assets under management by NAM were ¥34.0¥47.9 trillion as of March 31, 2020,2022, a ¥1.6¥1.3 trillion, 4% decrease3% increase from March 31, 2019.2021. This decreaseincrease is due to positive net inflows of ¥1.4¥1.0 trillion and market depreciationappreciation of ¥3.0¥0.3 trillion. Despite the market depreciation, theThe balances of certain investment trusts, such as TOPIX Exchange Traded Fund increased.
Investment trust assets included in assets under management by NAM were ¥35.6¥46.6 trillion as of March 31, 2019,2021, a ¥1.5¥12.6 trillion, 4%37% increase from March 31, 2018.2020. This increase is due to positive net inflows of ¥2.2¥2.8 trillion and market depreciationappreciation of ¥0.7¥9.8 trillion. The balances of certain investment trusts, such as TOPIX Exchange Traded Fund and Nikkei 225 Exchange Traded Fund increased.
62
Wholesale
Operating Results of Wholesale
The operating results of our Wholesale Division comprise the combined results of our Global Markets and Investment Banking businesses. Our Global Markets business comprises our Fixed Income and Equities businesses.
Millions of yen | ||||||||||||||||||||
Year ended March 31 | ||||||||||||||||||||
2018 | 2019 | % Change from previous year | 2020 | % Change from previous year | ||||||||||||||||
Non-interest revenue | ¥ | 587,474 | ¥ | 496,484 | (15.5 | )% | ¥ | 506,203 | 2.0 | % | ||||||||||
Net interest revenue | 127,859 | 58,904 | (53.9 | ) | 142,416 | 141.8 | ||||||||||||||
Net revenue | 715,333 | 555,388 | (22.4 | ) | 648,619 | 16.8 | ||||||||||||||
Non-interest expenses | 614,745 | 666,787 | 8.5 | 556,399 | (16.6 | ) | ||||||||||||||
Income (loss) before income taxes | ¥ | 100,588 | ¥ | (111,399 | ) | — | % | ¥ | 92,220 | — | % | |||||||||
Millions of yen | ||||||||||||||||||||
Year ended March 31 | ||||||||||||||||||||
2020 | 2021 | % Change from previous year | 2022 | % Change from previous year | ||||||||||||||||
Non-interest revenue | ¥ | 506,203 | ¥ | 524,019 | 3.5 | % | ¥ | 617,227 | 17.8 | % | ||||||||||
Net interest revenue | 142,416 | 167,337 | 17.5 | 85,828 | (48.7 | ) | ||||||||||||||
Net revenue | 648,619 | 691,356 | 6.6 | 703,055 | 1.7 | |||||||||||||||
Non-interest expenses | 556,399 | 627,051 | 12.7 | 628,563 | 0.2 | |||||||||||||||
Income (loss) before income taxes | ¥ | 92,220 | ¥ | 64,305 | (30.3 | )% | ¥ | 74,492 | 15.8 | % | ||||||||||
Net revenue
Net revenue
Non-interest
expensesyen-denominated
expenses at overseas driven by the Non-interest
expensesThe following table presents a breakdown of net revenue for Wholesale for the year ended March 31, 2018, 20192020, 2021 and 2020.2022.
Millions of yen | ||||||||||||||||||||
Year ended March 31 | ||||||||||||||||||||
2018 | 2019 | % Change from previous year | 2020 | % Change from previous year | ||||||||||||||||
Wholesale net revenue: | ||||||||||||||||||||
Global Markets net revenue | ¥ | 603,197 | ¥ | 453,044 | (24.9 | )% | ¥ | 562,927 | 24.3 | % | ||||||||||
Investment Banking net revenue | 112,136 | 102,344 | (8.7 | ) | 85,692 | (16.3 | ) | |||||||||||||
Net revenue | ¥ | 715,333 | ¥ | 555,388 | (22.4 | )% | ¥ | 648,619 | 16.8 | % | ||||||||||
Millions of yen | ||||||||||||||||||||
Year ended March 31 | ||||||||||||||||||||
2020 | 2021 | % Change from previous year | 2022 | % Change from previous year | ||||||||||||||||
Wholesale net revenue: | ||||||||||||||||||||
Global Markets net revenue | ¥ | 562,927 | ¥ | 575,533 | 2.2 | % | ¥ | 556,417 | (3.3 | )% | ||||||||||
Investment Banking net revenue | 85,692 | 115,823 | 35.2 | 146,638 | 26.6 | |||||||||||||||
Net revenue | ¥ | 648,619 | ¥ | 691,356 | 6.6 | % | ¥ | 703,055 | 1.7 | % | ||||||||||
Global Markets
We have a proven track record in sales and trading of debt securities, equity securities, and foreign exchange, as well as derivative products based on these financial instruments, mainly to domestic and overseas
63
institutional investors. In response to the increasingly diverse and complex needs of our clients, we continue to enhance our trading and product origination capabilities to offer superior products not only to domestic and overseas institutional investors, but also to our Retail and AssetInvestment Management Divisions. This cross-divisional approach also extends to Investment Banking, where close collaboration leads to high value-adding solutions for our clients. These ties enable us to identify the types of product of interest for investors and develop and deliver products that meet their needs. We continue to develop extensive ties with institutional investors in Japan and international markets, as well as wealthy investors, public-sector agencies, and regional financial institutions in Japan, and government agencies, financial institutions, and corporations around the world.
Net
nue
Net revenue
Net revenue
Net revenue
Investment Banking
We provide a broad range of investment banking services, such as underwriting and advisory activities. We underwrite offerings of debt, equity and other financial instruments in major financial markets, such as Asia, Europe and the U.S. We have been enhancing our M&A and financial advisory expertise to secure more
high-profile
deals both across and within regions. We develop and forge solid relationships with clients on a long-term basis by providing extensive resources in a seamless fashion to facilitate bespoke solutions.Net revenue
Net revenue
Other Operating Results
Other operating results include net gain (loss) related to economic hedging transactions, a part of realized gaingain(loss) on investments in equity securities held for operating purposes, equity in earnings of affiliates, operating results of the Merchant Banking Division, corporate items, and other financial adjustments. See Note 2221 “” in our consolidated financial statements included within this annual report.
Segment and geographic information
Income (loss) before income taxes
Other operating results for the year ended March 31, 2022 include the positive impact of our own creditworthiness on derivative liabilities which resulted in gains of ¥6,731 million and losses from changes in counterparty credit spreads of ¥1,249 million.
64
Other operating results for the year ended March 31, 2021 include the negative impact of our own creditworthiness on derivative liabilities which resulted in losses of ¥12,052 million and gains from changes in counterparty credit spreads of ¥11,988 million.
Other operating results for the year ended March 31, 2020 include the negative impact of our own creditworthiness on derivative liabilities which resulted in gains of ¥16,333 million and losses from changes in counterparty credit spreads of ¥12,056 million.
Summary of Regional Contribution
For a summary of ourand long-lived assets by geographic region, see Note 2221 “” in our consolidated financial statements included in this annual report.
net revenue, income (loss) before income taxes
Segment and geographic information
Selected Financial Data
The following table presents selected financial information as of and for the years ended March 31, 2018, 2019, 2020, 2021 and 2022 which is derived from our consolidated financial statements.
Millions of yen, except per share data and percentages | ||||||||||||||||||||
Year ended March 31 | ||||||||||||||||||||
2018 | 2019 | 2020 | 2021 | 2022 | ||||||||||||||||
Statement of income data: | ||||||||||||||||||||
Revenue | ¥ | 1,972,158 | ¥ | 1,835,118 | ¥ | 1,952,482 | ¥ | 1,617,235 | ¥ | 1,593,999 | ||||||||||
Interest expense | 475,189 | 718,348 | 664,653 | 215,363 | 230,109 | |||||||||||||||
Net revenue | 1,496,969 | 1,116,770 | 1,287,829 | 1,401,872 | 1,363,890 | |||||||||||||||
Non-interest expenses | 1,168,811 | 1,154,471 | 1,039,568 | 1,171,201 | 1,137,267 | |||||||||||||||
Income (loss) before income taxes | 328,158 | (37,701 | ) | 248,261 | 230,671 | 226,623 | ||||||||||||||
Income tax expense | 103,866 | 57,010 | 28,894 | 70,274 | 80,090 | |||||||||||||||
Net income (loss) | ¥ | 224,292 | ¥ | (94,711 | ) | ¥ | 219,367 | ¥ | 160,397 | ¥ | 146,533 | |||||||||
Less: Net income attributable to noncontrolling interests | 4,949 | 5,731 | 2,369 | 7,281 | 3,537 | |||||||||||||||
Net income (loss) attributable to NHI shareholders | ¥ | 219,343 | ¥ | (100,442 | ) | ¥ | 216,998 | ¥ | 153,116 | ¥ | 142,996 | |||||||||
Balance sheet data (period end): | ||||||||||||||||||||
Total assets | ¥ | 40,343,947 | ¥ | 40,969,439 | ¥ | 43,999,815 | ¥ | 42,516,480 | ¥ | 43,412,156 | ||||||||||
Total NHI shareholders’ equity | 2,749,320 | 2,631,061 | 2,653,467 | 2,694,938 | 2,914,605 | |||||||||||||||
Total equity | 2,799,824 | 2,680,793 | 2,731,264 | 2,756,451 | 2,972,803 | |||||||||||||||
Common stock | 594,493 | 594,493 | 594,493 | 594,493 | 594,493 | |||||||||||||||
Per share data: | ||||||||||||||||||||
Net income (loss) attributable to NHI shareholders—basic | ¥ | 63.13 | ¥ | (29.90 | ) | ¥ | 67.76 | ¥ | 50.11 | ¥ | 46.68 | |||||||||
Net income (loss) attributable to NHI shareholders—diluted | 61.88 | (29.92 | ) | 66.20 | 48.63 | 45.23 | ||||||||||||||
Total NHI shareholders’ equity (1) | 810.31 | 794.69 | 873.26 | 879.79 | 965.80 | |||||||||||||||
Cash dividends (1) | 20.00 | 6.00 | 20.00 | 35.00 | 22.00 | |||||||||||||||
Cash dividends in USD (2) | $ | 0.19 | $ | 0.05 | $ | 0.19 | $ | 0.32 | $ | 0.18 | ||||||||||
Weighted average number of shares outstanding (in thousands) (3) | 3,474,593 | 3,359,565 | 3,202,370 | 3,055,526 | 3,063,524 | |||||||||||||||
Return on equity (4) : | 7.9 | % | (3.7 | %) | 8.2 | % | 5.7 | % | 5.1 | % | ||||||||||
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| (1) | Calculated using the number of shares outstanding at year end. |
| (2) | Calculated using the Japanese Yen—U.S. Dollar exchange rate as of the respective fiscal year end date, the noon buying rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York. |
| (3) | The number shown is used to calculate basic earnings per share. |
| (4) | Calculated as net income (loss) attributable to NHI shareholders divided by total NHI shareholders’ equity. |
Regulatory Capital Requirements
Many of our business activities are subject to statutory capital requirements, including those of Japan, the U.S., the U.K. and certain other countries in which we operate. For further discussion on statutory capital requirements, see Note 1918 “” in our consolidated financial statements included in this annual report.
Regulatory requirements
Translation Exposure
A significant portion of our business is conducted in currencies other than Japanese Yen—most significantly, U.S. dollars,Dollars, British pounds and Euros. We prepare financial statements of each of our consolidated subsidiaries in its functional currency, which is the currency of the primary economic environment in which the entity operates. Translation exposure is the risk arising from the effect of fluctuations in exchange rates on the net assets of our foreign subsidiaries. Translation exposure is not recognized in our consolidated statements of income unless and until we dispose of, or liquidate, the relevant foreign subsidiary.
accounting policy | estimates | assumptions by management | ||||
accounting policy | estimates | assumptions by management | ||||
accounting policy | estimates | assumptions by management | ||||
Billions of yen | ||||||||||||||||||||
March 31, 2020 | ||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Counterparty and Cash Collateral Netting | Total | ||||||||||||||||
Financial assets measured at fair value (Excluding derivative assets) | ¥ | 6,855 | ¥ | 9,699 | ¥ | 751 | ¥ | — | ¥ | 17,305 | ||||||||||
Derivative assets | 71 | 20,921 | 198 | (19,248 | ) | 1,942 | ||||||||||||||
Total | ¥ | 6,926 | ¥ | 30,620 | ¥ | 949 | ¥ | (19,248 | ) | ¥ | 19,247 | |||||||||
Billions of yen | ||||||||
March 31, 2019 | ||||||||
Assets | Liabilities | |||||||
Listed derivatives | ¥ | 103 | ¥ | 241 | ||||
OTC derivatives | 749 | 574 | ||||||
| ¥ | 852 | ¥ | 815 | |||||
Billions of yen | ||||||||
March 31, 2020 | ||||||||
Assets | Liabilities | |||||||
Listed derivatives | ¥ | 559 | ¥ | 716 | ||||
OTC derivatives | 1,383 | 1,093 | ||||||
| ¥ | 1,942 | ¥ | 1,809 | |||||
Billions of yen | ||||||||||||||||||||||||||||
March 31, 2020 | ||||||||||||||||||||||||||||
Years to Maturity | ||||||||||||||||||||||||||||
Less than 1 year | 1 to 3 years | 3 to 5 years | 5 to 7 years | More than 7 years | Cross-maturity netting (1) | Total fair value | ||||||||||||||||||||||
OTC derivative assets | ¥ | 2,026 | ¥ | 1,319 | ¥ | 944 | ¥ | 617 | ¥ | 3,853 | ¥ | (7,376 | ) | ¥ | 1,383 | |||||||||||||
OTC derivative liabilities | 1,748 | 1,256 | 922 | 626 | 3,392 | (6,851 | ) | 1,093 | ||||||||||||||||||||
Assets and Liabilities Associated with Investment and Financial Services Business
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 leveragedbuy-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 March 31, 2020.2022.
Millions of yen | ||||||||||||
March 31, 2020 | ||||||||||||
Funded | Unfunded | Total | ||||||||||
Europe | ¥ | 120,362 | ¥ | 71,840 | ¥ | 192,202 | ||||||
Americas | 53,878 | 57,280 | 111,158 | |||||||||
Asia and Oceania | 7,761 | 5,166 | 12,927 | |||||||||
Total | ¥ | 182,001 | ¥ | 134,286 | ¥ | 316,287 | ||||||
Millions of yen | ||||||||||||
March 31, 2022 | ||||||||||||
Funded | Unfunded | Total | ||||||||||
Europe | ¥ | 6,361 | ¥ | 69,040 | ¥ | 75,401 | ||||||
Americas | 17,370 | 106,915 | 124,285 | |||||||||
Asia and Oceania | 10,448 | 27,289 | 37,737 | |||||||||
Total | ¥ | 34,179 | ¥ | 203,244 | ¥ | 237,423 | ||||||
Special Purpose Entities (“SPEs”)
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.entities, subject to prevailing market conditions. In the normal course ofconnection with our securitization and equity derivative activities, business, we also act as a transferor of financial assets to andthese entities, as well as, underwriter, distributor and seller of repackagedasset-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.
66
For further discussion on Nomura’s involvement with variable interest entities, see Note 6 “” in our consolidated financial statements included in this annual report.
Securitizations and Variable Interest Entities
Accounting Developments
See Note 1 “1“” in our consolidated financial statements included in this annual report.
Summary of accounting policies: New accounting pronouncements adopted during the current year
Deferred Tax Assets
Details of deferred tax assets and liabilities
The following table presents details of deferred tax assets and liabilities reported within, respectively, in the consolidated balance sheets as of March 31, 2020.2022.
Other assets—assets
—
Other and Other liabilities
Millions of yen | |||||
March 31, 2022 | |||||
Deferred tax assets | |||||
Depreciation, amortization and valuation of fixed assets | ¥ | ||||
Investments in subsidiaries and affiliates | |||||
Valuation of financial instruments | |||||
Accrued pension and severance costs | |||||
Other accrued expenses and provisions | |||||
Operating losses | |||||
Lease liabilities | |||||
Other | |||||
Gross deferred tax assets | |||||
Less — | ( | ) | |||
Total deferred tax assets | |||||
Deferred tax liabilities | |||||
Investments in subsidiaries and affiliates | |||||
Valuation of financial instruments | |||||
Undistributed earnings of foreign subsidiaries | |||||
Valuation of fixed assets | |||||
Right-of-use | |||||
Other | |||||
Total deferred tax liabilities | 258,611 | ||||
Net deferred tax assets (liabilities) | ¥ | ( | ) | ||
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.
B. 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
67
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.
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 March 31, 2020,2022, our liquidity portfolio was ¥5,354.4¥7,074.2 billion which sufficiently met liquidity requirements under the stress scenarios even amid the highly volatile financial market due to the pandemic of theCOVID-19scenarios.pandemic.
The following table presents a breakdown of our liquidity portfolio by type of financial assets as of March 31, 20192021 and 20202022 and averages maintained for the years ended March 31, 20192021 and 2020.2022. Yearly averages are calculated using
month-end
amounts.Billions of yen | ||||||||||||||||
Average for year ended March 31, 2019 | March 31, 2019 | Average for year ended March 31, 2020 | March 31, 2020 | |||||||||||||
Cash, cash equivalents and time deposits (1) | ¥ | 2,280.3 | ¥ | 2,113.1 | ¥ | 2,323.6 | ¥ | 2,540.4 | ||||||||
Government debt securities | 2,553.0 | 2,424.6 | 2,371.5 | 2,412.2 | ||||||||||||
Others (2) | 301.1 | 332.8 | 310.6 | 401.8 | ||||||||||||
Total liquidity portfolio | ¥ | 5,134.4 | ¥ | 4,870.5 | ¥ | 5,005.7 | ¥ | 5,354.4 | ||||||||
Billions of yen | ||||||||||||||||
Average for year ended March 31, 2021 | March 31, 2021 | Average for year ended March 31, 2022 | March 31, 2022 | |||||||||||||
Cash, cash equivalents and time deposits (1) | ¥ | 2,775.9 | ¥ | 2,765.0 | ¥ | 3,151.6 | ¥ | 2,997.5 | ||||||||
Government debt securities | 3,082.8 | 2,641.2 | 3,629.8 | 3,674.2 | ||||||||||||
Others (2) | 254.0 | 252.1 | 298.3 | 402.5 | ||||||||||||
Total liquidity portfolio | ¥ | 6,112.7 | ¥ | 5,658.3 | ¥ | 7,079.7 | ¥ | 7,074.2 | ||||||||
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| (1) | Cash, cash equivalents, and time deposits include nostro balances and deposits with both central banks and market counterparties that are readily available to support the liquidity position of Nomura. |
| (2) | Others include other liquid financial assets such as money market funds and U.S. agency securities. |
The following table presents a breakdown of our liquidity portfolio by currency as of March 31, 20192021 and 20202022 and averages maintained for the years ended March 31, 20192021 and 2020.2022. Yearly averages are calculated using
month-end
amounts.Billions of yen | ||||||||||||||||
Average for year ended March 31, 2019 | March 31, 2019 | Average for year ended March 31, 2020 | March 31, 2020 | |||||||||||||
Japanese Yen | ¥ | 1,696.8 | ¥ | 1,570.7 | ¥ | 1,500.6 | ¥ | 1,341.9 | ||||||||
U.S. Dollar | 2,231.0 | 1,961.7 | 2,219.9 | 2,732.5 | ||||||||||||
Euro | 734.0 | 898.8 | 818.4 | 789.5 | ||||||||||||
British Pound | 325.2 | 265.7 | 310.5 | 315.5 | ||||||||||||
Others (1) | 147.4 | 173.6 | 156.3 | 175.0 | ||||||||||||
Total liquidity portfolio | ¥ | 5,134.4 | ¥ | 4,870.5 | ¥ | 5,005.7 | ¥ | 5,354.4 | ||||||||
Billions of yen | ||||||||||||||||
Average for year ended March 31, 2021 | March 31, 2021 | Average for year ended March 31, 2022 | March 31, 2022 | |||||||||||||
Japanese Yen | �� | 2,298.1 | ¥ | 966.5 | ¥ | 1,913.7 | ¥ | 1,409.8 | ||||||||
U.S. Dollar | 2,441.2 | 3,367.1 | 3,567.3 | 3,924.1 | ||||||||||||
Euro | 795.1 | 793.5 | 792.3 | 868.5 | ||||||||||||
British Pound | 405.4 | 333.8 | 578.3 | 597.5 | ||||||||||||
Others (1) | 172.9 | 197.5 | 228.1 | 274.3 | ||||||||||||
Total liquidity portfolio | ¥ | 6,112.7 | ¥ | 5,658.3 | ¥ | 7,079.7 | ¥ | 7,074.2 | ||||||||
| (1) | Includes other currencies such as the Australian dollar, the Canadian dollar and the Swiss franc. |
We assess our liquidity portfolio requirements globally as well as by each major operating entity in the Nomura Group. We primarily maintain our liquidity portfolio at Nomura Holdings, Inc. (“NHI”) and Nomura Securities Co. Ltd. (“NSC”), our other major broker-dealer subsidiaries, our bank subsidiaries, and other group entities. In determining the amounts and entities which hold this liquidity portfolio, we consider legal, regulatory and tax restrictions which may impact our ability to freely transfer liquidity across different entities in the Nomura Group. For more information regarding regulatory restrictions, see Note 1918 “” in our consolidated financial statements included within this annual report.
Regulatory requirements
The following table presents a breakdown of our liquidity portfolio by entity as of March 31, 20192021 and 2020.2022.
Billions of yen | ||||||||
March 31, 2019 | March 31, 2020 | |||||||
NHI and NSC (1) | ¥ | 1,142.9 | ¥ | 1,382.9 | ||||
Major broker-dealer subsidiaries | 2,473.5 | 2,645.8 | ||||||
Bank subsidiaries (2) | 799.4 | 775.8 | ||||||
Other affiliates | 454.7 | 549.9 | ||||||
Total liquidity portfolio | ¥ | 4,870.5 | ¥ | 5,354.4 | ||||
Billions of yen | ||||||||
March 31, 2021 | March 31, 2022 | |||||||
NHI and NSC (1) | ¥ | 981.8 | ¥ | 1,395.4 | ||||
Major broker-dealer subsidiaries | 2,632.6 | 3,118.5 | ||||||
Bank subsidiaries (2) | 752.6 | 1,008.5 | ||||||
Other affiliates | 1,291.3 | 1,551.8 | ||||||
Total liquidity portfolio | ¥ | 5,658.3 | ¥ | 7,074.2 | ||||
| (1) | NSC, a broker-dealer located in Japan, holds an account with the Bank of Japan (“BOJ”) and has direct access to the BOJ Lombard facility through which same day funding is available for our securities pool. Any liquidity surplus at NHI is lent to NSC via short-term intercompany loans, which can be unwound immediately when needed. |
| (2) | Includes Nomura Bank International plc (“NBI”), Nomura Singapore Limited and Nomura Bank Luxembourg S.A. |
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2. Utilization of Unencumbered Assets as Part of Our Liquidity Portfolio.
In addition to our liquidity portfolio, we had ¥2,573.6¥2,665.7 billion of other 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 as of March 31, 20202022 was ¥7,928.0¥9,739.9 billion, which represented 258.0% 332.2of our total unsecured debt maturing within one year.
%
Billions of yen | ||||||||
March 31, 2019 | March 31, 2020 | |||||||
Net liquidity value of other unencumbered assets | ¥ | 2,268.1 | ¥ | 2,573.6 | ||||
Liquidity portfolio | 4,870.5 | 5,354.4 | ||||||
Total | ¥ | 7,138.6 | ¥ | 7,928.0 | ||||
Billions of yen | ||||||||
March 31, 2021 | March 31, 2022 | |||||||
Net liquidity value of other unencumbered assets | ¥ | 2,771.6 | ¥ | 2,665.7 | ||||
Liquidity portfolio | 5,658.3 | 7,074.2 | ||||||
Total | ¥ | 8,429.9 | ¥ | 9,739.9 | ||||
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. The proportion of our46.1%51.4% of total long-term debt outstanding as of March 31, 20202022 from 43.6%47.2% as of March 31, 2019.2021.
non-Japanese
Yen denominated long-term debt increased to 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, 20192021 and 2020.2022.
Billions of yen | ||||||||
March 31, 2019 | March 31, 2020 | |||||||
Short-term bank borrowings | ¥ | 107.0 | ¥ | 572.1 | ||||
Other loans | 231.4 | 154.3 | ||||||
Commercial paper | 313.0 | 525.1 | ||||||
Deposits at banking entities | 1,149.1 | 1,116.2 | ||||||
Certificates of deposit | 11.1 | 12.1 | ||||||
Debt securities maturing within one year | 707.2 | 692.5 | ||||||
Total short-term unsecured debt | ¥ | 2,518.8 | ¥ | 3,072.3 | ||||
Billions of yen | ||||||||
March 31, 2021 | March 31, 2022 | |||||||
Short-term bank borrowings | ¥ | 265.8 | ¥ | 148.0 | ||||
Other loans | 138.7 | 228.1 | ||||||
Commercial paper | 460.0 | 131.9 | ||||||
Deposits at banking entities | 1,149.9 | 1,520.7 | ||||||
Certificates of deposit | 83.6 | 127.8 | ||||||
Debt securities maturing within one year | 831.5 | 775.6 | ||||||
Total short-term unsecured debt | ¥ | 2,929.5 | ¥ | 2,932.1 | ||||
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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, NSC, Nomura Europe Finance N.V., NBI, 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, 20192021 and 2020.2022.
Billions of yen | ||||||||
March 31, 2019 | March 31, 2020 | |||||||
Long-term deposits at banking entities | ¥ | 232.5 | ¥ | 147.9 | ||||
Long-term bank borrowings | 2,727.5 | 2,591.5 | ||||||
Other loans | 87.9 | 82.5 | ||||||
Debt securities (1) | 3,435.6 | 3,522.1 | ||||||
Total long-term unsecured debt | ¥ | 6,483.5 | ¥ | 6,344.0 | ||||
Billions of yen | ||||||||
March 31, 2021 | March 31, 2022 | |||||||
Long-term deposits at banking entities | ¥ | 109.0 | ¥ | 112.3 | ||||
Long-term bank borrowings | 2,635.2 | 2,820.5 | ||||||
Other loans | 74.2 | 219.5 | ||||||
Debt securities (1) | 3,877.9 | 4,745.8 | ||||||
Total long-term unsecured debt | ¥ | 6,696.3 | ¥ | 7,898.1 | ||||
| (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 Long-term borrowings 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. The average maturity for our plain vanilla debt securities and borrowings with maturities longer than one year was 4.54.4 years as of March 31, 2020.2022. 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 borrowing is likely to be called. The graph below shows the distribution of maturities of our outstanding long-term debt securities and borrowings by the model.
On this basis, the average maturity of our structured loans and structured notes with maturities longer than one year was 6.410.1 years as of March 31, 2020.2022. The average maturity of our entire long-term debt with maturities longer than one year including plain vanilla debt securities and borrowings, was 5.57.2 years as of March 31, 2020.2022.
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 “” in our consolidated financial statements.
Collateralized transactions
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 March 31, 2020,2022, 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; andLegal and regulatory requirements that can restrict the flow of funds between entities in the Nomura Group.
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 BOJ, 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 (on October 31, 2014). The notices have been implemented since the end of March 2015 with20202022 was 201.1%241.7%, 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 it is not yethas been implemented in Japan.from the end of September 2021. Nomura’s NSFR as of March 31, 2022 was compliant with the regulatory requirements.
phased-in
minimum standards. Average of Nomura’s LCRs for the three months ended March 31, Cash Flows
Nomura’s cash flows are primarily generated from operating activities undertaken in connection with our client flows and trading and from financing activities which are closely related to such activities. As a financial institution, growth in operations tends to result in cash outflows from operating activities as well as investing activities. For the yearsyear ended March 2019,2021, we recorded net cash inflows from operating activities and net cash outflow from investing and financing activities. For the year ended March 2022, we recorded net cash outflows from operating activities and investing activities. For the years ended March 2020, we recorded net cash outflows from operating activities and net cash inflow from investingfinancing activities as discussed in the comparative analysis below.
The following table presents the summary information on our consolidated cash flows for the years ended March 31, 20192021 and 2020.2022.
Billions of yen | ||||||||
Year Ended March 31 | ||||||||
2019 | 2020 | |||||||
Net cash used in operating activities | ¥ | (361.2 | ) | ¥ | (15.9 | ) | ||
Net income (loss) | (94.7 | ) | 219.4 | |||||
Trading assets and private equity and debt investments | 925.4 | (2,754.7 | ) | |||||
Trading liabilities | (143.1 | ) | 429.0 | |||||
Securities purchased under agreements to resell, net of securities sold under agreements to repurchase | (3,274.9 | ) | 2,224.4 | |||||
Securities borrowed, net of securities loaned | 1,987.3 | 291.8 | ||||||
Other, net | 238.8 | (425.7 | ) | |||||
Net cash provided by (used in) investing activities | (112.5 | ) | 216.3 | |||||
Net cash provided by financing activities | 761.2 | 332.1 | ||||||
Long-term borrowings, net | 516.7 | (38.4 | ) | |||||
Increase in short-term borrowings, net | 85.9 | 656.2 | ||||||
Increase (decrease) in deposits received at banks, net | 257.5 | (93.3 | ) | |||||
Other, net | (98.9 | ) | (192.5 | ) | ||||
Effect of exchange rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents | 44.7 | (27.3 | ) | |||||
Net increase in cash, cash equivalents, restricted cash and restricted cash equivalents | 332.3 | 505.2 | ||||||
Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of the year | 2,354.9 | 2,687.1 | ||||||
Cash, cash equivalents, restricted cash and restricted cash equivalents at end of the year | ¥ | 2,687.1 | ¥ | 3,192.3 | ||||
Billions of yen | ||||||||
Year Ended March 31 | ||||||||
2021 | 2022 | |||||||
Net cash provided by (used in) operating activities | ¥ | 665.8 | ¥ | (1,368.7 | ) | |||
Net income | 160.4 | 146.5 | ||||||
Trading assets and private equity and debt investments | 1,468.4 | 1,254.3 | ||||||
Trading liabilities | 777.7 | (284.7 | ) | |||||
Securities purchased under agreements to resell, net of securities sold under agreements to repurchase | (1,453.9 | ) | (2,220.5 | ) | ||||
Securities borrowed, net of securities loaned | (1,242.5 | ) | 595.1 | |||||
Other, net | 955.7 | (859.4 | ) | |||||
Cash flows from investing activities: | (139.0 | ) | (45.3 | ) | ||||
Cash flows from financing activities: | (269.9 | ) | 1,070.7 | |||||
Long-term borrowings, net | (1.0 | ) | 1,225.0 | |||||
Decrease in short-term borrowings, net | (325.2 | ) | (475.5 | ) | ||||
Increase in deposits received at banks, net | 126.2 | 448.1 | ||||||
Other, net | (69.9 | ) | (126.9 | ) | ||||
Effect of exchange rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents | 60.8 | 149.7 | ||||||
Net increase in cash, cash equivalents, restricted cash and restricted cash equivalents | 317.7 | (193.6 | ) | |||||
Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of the year | 3,192.3 | 3,510.0 | ||||||
Cash, cash equivalents, restricted cash and restricted cash equivalents at end of the year | ¥ | 3,510.0 | ¥ | 3,316.4 | ||||
See the consolidated statements of cash flows in our consolidated financial statements included within this annual report for more detailed information.
For the year ended March 31, 2020,2022, our cash, cash equivalents, restricted cash and restricted cash equivalents increaseddecreased by ¥505.2¥193.6 billion to ¥3,192.3¥3,316.4 billion. Net cash of ¥332.1¥1,070.7 billion was provided by financing activities due to net cash inflows of ¥656.2¥1,225.0 billion fromShort-termLong-term borrowings. As part of trading activities, while there were net cash outflowsinflows of ¥2,325.7¥969.6 billion mainly due to an increasea decrease inin combination with cash inflows due to an increase inTrading liabilities,they were offset by net cash inflowsoutflows of ¥2,516.1¥1,625.4 billion from repo transactions and securities borrowed and loaned transactions such as, andAs a result, net cash of ¥15.9¥1,368.7 billion was used in operating activities.
Trading assets and Privateprivate equity and debt investments,
Securities purchased under agreements to resell, Securities sold under agreements to repurchase
Securities borrowed, net of Securities loaned.
For the year ended March 31, 2019,2021, our cash, cash equivalents, restricted cash and restricted cash equivalents increased by ¥332.3¥317.7 billion to ¥2,687.1¥3,510.0 billion. Net cash of ¥761.2¥269.9 billion was provided byused in financing activities due to net cash inflowsoutflows of ¥516.7¥325.2 billion fromLong-termShort-term borrowings. As part of trading activities, while there were net cash inflows of ¥782.2¥2,246.1 billion mainly due to a decrease inin combination with cash outflows due to a decrease inTrading liabilities,they were offset by net cash outflows of ¥1,287.5¥2,696.4 billion from repo transactions and securities borrowed and loaned transactions such as, andAs a result, net cash of ¥361.2¥665.8 billion was used inprovided by operating activities.
Trading assets and Private equity and debt investments,
Securities purchased under agreements to resell, Securities sold under agreements to repurchase
Securities borrowed, net of Securities loaned.
Balance Sheet and Financial Leverage
Total assets as of March 31, 2020,2022, were ¥43,999.8¥43,412.2 billion, an increase of ¥3,030.4¥895.7 billion compared with ¥40,969.4¥42,516.5 billion as of March 31, 2019, reflecting primarily an increase inTrading assets. Total liabilities as of March 31, 2020, were ¥41,268.6 billion, an increase of ¥2,979.9 billion compared with ¥38,288.6 billion as of March 31, 2019,2021, reflecting primarily an increase inTotal liabilities as of March 31, 2022, were ¥40,439.4 billion, an increase of ¥679.3 billion compared with ¥39,760.0 billion as of March 31, 2021, reflecting primarily an increase in. NHI shareholders’ equity as of March 31, 20202022 was ¥2,653.5¥2,914.6 billion, an increase of ¥22.4¥219.7 billion compared with ¥2,631.1¥2,694.9 billion as of March 31, 2019,2021, primarily due to an increase inRetained earnings.Accumulated other
Securities soldpurchased under agreements to repurchaseresell
.
Long-term borrowings
comprehensive income.
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.
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 presents NHI shareholders’ equity, total assets, adjusted assets and leverage ratios as of March 31, 20192021 and 2020.2022.
Billions of yen, except ratios | ||||||||
March 31 | ||||||||
2019 | 2020 | |||||||
NHI shareholders’ equity | ¥ | 2,631.1 | ¥ | 2,653.5 | ||||
Total assets | 40,969.4 | 43,999.8 | ||||||
Adjusted assets (1) | 23,662.5 | 28,092.7 | ||||||
Leverage ratio (2) | 15.6 x | 16.6 x | ||||||
Adjusted leverage ratio (3) | 9.0 x | 10.6 x | ||||||
Billions of yen, except ratios | ||||||||
March 31 | ||||||||
2021 | 2022 | |||||||
NHI shareholders’ equity | ¥ | 2,694.9 | ¥ | 2,914.6 | ||||
Total assets | 42,516.5 | 43,412.2 | ||||||
Adjusted assets (1) | 26,477.0 | 26,535.8 | ||||||
Leverage ratio (2) | 15.8 x | 14.9 x | ||||||
Adjusted leverage ratio (3) | 9.8 x | 9.1 x | ||||||
| (1) | Represents total assets less Securities purchased under agreements to resell Securities borrowed non-GAAP financial measure and is calculated as follows: |
Billions of yen | ||||||||
March 31 | ||||||||
2019 | 2020 | |||||||
Total assets | ¥ | 40,969.4 | ¥ | 43,999.8 | ||||
Less: | ||||||||
Securities purchased under agreements to resell | 13,194.5 | 12,377.3 | ||||||
Securities borrowed | 4,112.4 | 3,529.8 | ||||||
Adjusted assets | ¥ | 23,662.5 | ¥ | 28,092.7 | ||||
| (2) | Equals total assets divided by NHI shareholders’ equity. |
| (3) | Equals adjusted assets divided by NHI shareholders’ equity. |
Billions of yen | ||||||||
March 31 | ||||||||
2021 | 2022 | |||||||
Total assets | ¥ | 42,516.5 | ¥ | 43,412.2 | ||||
Less: | ||||||||
Securities purchased under agreements to resell | 10,775.1 | 11,879.3 | ||||||
Securities borrowed | 5,264.4 | 4,997.1 | ||||||
Adjusted assets | ¥ | 26,477.0 | ¥ | 26,535.8 | ||||
Total assets increased by 7.4%2.1% reflecting primarily an increase inTrading assetsSecurities purchased under agreements to resell.. Total NHI shareholders’ equity increased by 0.9%8.2% reflecting primarily an increase inRetained earningsAccumulated other comprehensive income. As a result, our leverage ratio increased from 15.6ratios were 15.8 times as of March 31, 2019 to 16.62021 and 14.9 times as of March 31, 2020.2022.
Adjusted assets increased primarily due to an increase inTrading assetsLoans receivable. As a result, our adjusted leverage ratio was 9.0ratios were 9.8 times as of March 31, 20192021 and 10.69.1 times as of March 31, 2020.
2022.
76
Capital Management
Capital Management Policy
We seek to enhance shareholder value and to capture growing business opportunities by maintaining sufficient levels of capital. We will continue to review our levels of capital as appropriate, taking into consideration the economic risks inherent to operating our businesses, the regulatory requirements, and maintaining our ratings necessary to operate businesses globally.
Dividends
We believe that raising corporate value over the long term and paying dividends is essential to rewarding shareholders. We will strive to pay dividends using a consolidated
pay-out
ratio of 30 percent of each semi-annual consolidated earnings as a key indicator.Dividend payments are determined taking into account a comprehensive range of factors such as the tightening of Basel regulations and other changes to the regulatory environment as well as the Company’s consolidated financial performance.
Dividends will in principle be paid on a semi-annual basis with record dates of September 30 and March 31.
Additionally we will aim for a total payout ratio, which includes dividends and share buybacks, of at least 50 percent.
With respect to retained earnings, in order to implement measures to adapt to regulatory changes and to increase shareholder value, we seek to efficiently invest in business areas where high profitability and growth may reasonably be expected, including the development and expansion of infrastructure.
Dividends for the Fiscal Year
Based on our Capital Management Policy described above, we paid a dividend of ¥15¥8 per share to shareholders of record as of September 30, 20192021 and have decided to pay a dividend of ¥5¥14 per share to shareholders of record as of March 31, 2020.2022. As a result, the total annual dividend will be ¥20¥22 per share.
The following table sets forthpresented the amounts of dividends per share paid by us in respect of the periods indicated:
Fiscal year ended or ending March 31, | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | Total | |||||||||||||||
2015 | ¥ | — | ¥ | 6.00 | ¥ | — | ¥ | 13.00 | ¥ | 19.00 | ||||||||||
2016 | — | 10.00 | — | 3.00 | 13.00 | |||||||||||||||
2017 | — | 9.00 | — | 11.00 | 20.00 | |||||||||||||||
2018 | — | 9.00 | — | 11.00 | 20.00 | |||||||||||||||
2019 | — | 3.00 | — | 3.00 | 6.00 | |||||||||||||||
2020 | — | 15.00 | — | 5.00 | 20.00 | |||||||||||||||
Fiscal year ended or ending March 31, | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | Total | |||||||||||||||
2017 | ¥ | — | ¥ | 9.00 | ¥ | — | ¥ | 11.00 | ¥ | 20.00 | ||||||||||
2018 | — | 9.00 | — | 11.00 | 20.00 | |||||||||||||||
2019 | — | 3.00 | — | 3.00 | 6.00 | |||||||||||||||
2020 | — | 15.00 | — | 5.00 | 20.00 | |||||||||||||||
2021 | — | 20.00 | — | 15.00 | 35.00 | |||||||||||||||
2022 | — | 8.00 | — | 14.00 | 22.00 | |||||||||||||||
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.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 March 31, 2020,2022, our common equity Tier 1 capital ratio (common equity Tier 1 capital divided by risk-weighted assets) is 15.34%17.22%, Tier 1 capital ratio (Tier 1 capital divided by risk-weighted assets) is 16.40%19.60% and consolidated capital adequacy ratio (total capital divided by risk-weighted assets) is 16.60%19.60% and we wereare in compliance with the requirement for each ratio set out in the Capital Adequacy Notice on Final Designated Parent Company, etc. (required level including applicable minimum consolidated capital buffers as of March 31, 20202022 is 7.51% for the common equity Tier 1 capital ratio, 9.01% for the Tier 1 capital ratio and 11.01% for the 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 March 31, 2022, our external TLAC as a percentage of risk-weighted assets is 30.72% 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 March 31, 20192021 and March 31, 2020.2022.
Billions of yen, except ratios | ||||||||
March 31 | ||||||||
2019 | 2020 | |||||||
Common equity Tier 1 capital | ¥ | 2,439.7 | ¥ | 2,404.6 | ||||
Tier 1 capital | 2,605.9 | 2,571.5 | ||||||
Total capital | 2,651.9 | 2,602.4 | ||||||
Risk-Weighted Assets | ||||||||
Credit risk-weighted assets | 7,527.4 | 7,634.7 | ||||||
Market risk equivalent assets | 4,211.1 | 5,549.3 | ||||||
Operational risk equivalent assets | 2,513.1 | 2,490.5 | ||||||
Total risk-weighted assets | ¥ | 14,251.6 | ¥ | 15,674.5 | ||||
Consolidated Capital Adequacy Ratios | ||||||||
Common equity Tier 1 capital ratio | 17.11 | % | 15.34 | % | ||||
Tier 1 capital ratio | 18.28 | % | 16.40 | % | ||||
Consolidated capital adequacy ratio | 18.60 | % | 16.60 | % | ||||
Billions of yen, except ratios | ||||||||
March 31 | ||||||||
2021 | 2022 | |||||||
Common equity Tier 1 capital | ¥ | 2,522.1 | ¥ | 2,726.4 | ||||
Tier 1 capital | 2,840.5 | 3,103.0 | ||||||
Total capital | 2,845.2 | 3,103.4 | ||||||
Risk-Weighted Assets | ||||||||
Credit risk-weighted assets | 8,550.9 | 8,301.2 | ||||||
Market risk equivalent assets | 4,951.6 | 4,899.0 | ||||||
Operational risk equivalent assets | 2,448.5 | 2,629.7 | ||||||
Total risk-weighted assets | ¥ | 15,951.0 | ¥ | 15,829.9 | ||||
Consolidated Capital Adequacy Ratios | ||||||||
Common equity Tier 1 capital ratio | 15.81 | % | 17.22 | % | ||||
Tier 1 capital ratio | 17.80 | % | 19.60 | % | ||||
Consolidated capital adequacy ratio | 17.83 | % | 19.60 | % | ||||
External TLAC as a percentage of risk-weighted assets | 23.06 | % | 30.72 | % | ||||
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, Marketmarket risk equivalent assets are calculated by using the Internal Models Approach for market risk.Approach.
78
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 annual report can compare our capital position against those of other financial groups to which Basel III is applied. ManagementOur management receives and reviews these capital ratios on a regular basis.
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, Articlethethese Notices. And weWe 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. Management receivesIn coordination with the monetary policy of the Bank of Japan in response to the impact of thereviews this consolidatedMarch 2021. Under these amendments, deposits with the Bank of Japan have been excluded from the total exposure measure used to calculate the leverage ratio on a regular basis.during the period from June 30, 2020 to March 31, 2022. In March 2022, the FSA announced this measure will be extended to March 31, 2024. As of March 31, 2020,2022, our consolidated leverage ratio was 4.83%is 5.98%.
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 COVID-19
pandemic, the FSA published amendments to the Notice on Consolidated Leverage Ratio on June 2020 and 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 March 31, 2022, our external TLAC as a percentage of leverage ratio exposure measure is 10.30% and we are in compliance with the requirement set out in the TLAC Notification.
Regulatory changes which affect us
The Basel Committee has issued a series of announcements regarding a Basel III program designed to strengthen the regulatory capital framework in light of weaknesses revealed by the financial crises. The following is a summary of the proposals which are most relevant to us.
On December 16, 2010, in an effort to promote a more resilient banking sector, the Basel Committee issued Basel III, that is, “International framework for liquidity risk measurement, standards and monitoring” and “A global regulatory framework for more resilient banks and banking systems”. They include raising the quality, consistency and transparency of the capital base; strengthening the risk coverage of the capital framework such as the implementation of a credit value adjustment (“CVA”) charge for OTC derivative trades; introducing a leverage ratio requirement as a supplemental measure to the risk-based framework; introducing a series of measures to address concerns over the “procyclicality” of the current framework; and introducing a minimum liquidity standard including aa longer-term structural liquidity ratio.the net stable funding ratio to measure stability of financing structure. These standards were implemented from 2013, which includes transitional treatment, (i.e., they are phased in gradually from 2013). In addition, the Basel Committee has issued interim rules for the capitalization of bank exposures to central counterparties (“CCPs”) on July 25, 2012, which came into effect in 2013 as part of Basel III. Moreover, in addition to Basel III leverage ratio framework under which we started the calculation and disclosure of consolidated leverage ratio as above, a series of final standards on the regulatory frameworks such as capital requirements for banks’ equity investments in funds, the standardized approach for
30-day
liquidity coverage ratio as well as 79
measuring counterparty credit risk exposures, capital requirements for bank exposures to CCPs, supervisory framework for measuring and controlling large exposures, Basel III: The Net Stable Funding Ratio and revisions to the securitization framework, and revised framework for market risk capital requirements have been published by the Basel Committee.
At the
G-20
summit in November 2011, the Financial Stability Board (“FSB”) and the Basel Committee announced the list of global systemically important banks(“G-SIBs”)
and the additional requirements to theG-SIBs
including the recovery and resolution plan. The group ofG-SIBs
have been updated annually and published by the FSB each November. Since November 2011, we have not been designated as aG-SIBs.
On theother hand, the FSB and the Basel Committee were asked to work on extending the framework for
G-SIBs
to domestic systemically important financial institutions(“D-SIBs”)
and the Basel Committee developed and published a set of principles on the assessment methodology and the higher loss absorbency requirement forD-SIBs.
In December 2015, the FSA identified us as aD-SIB
and required additional capital charge of 0.5% after March 2016, with3-year
transitional arrangement.In November 2015, the FSB issued the final TLAC standard for
G-SIBs.
The TLAC standard has been designed so that failingG-SIBs
will have sufficient loss-absorbing and recapitalization capacity available in resolution for authorities to implement an orderly resolution. In response to the FSB’s publication of the TLAC standard, in April 2016, the FSA published its policy to develop the TLAC framework in Japan applicable to JapaneseG-SIBs
and, in April 2018, revised such policy to apply the TLAC requirements in Japan not only to JapaneseG-SIBs
but also to JapaneseD-SIBs
that are deemed (i) of particular need for a cross-border resolution arrangement and (ii) of particular systemic significance to Japanese financial system if they fail. In the revised policy, the JapaneseG-SIBs
and Nomura (“TLAC Covered SIBs”) would be subject to the TLAC requirements in Japan. On March 2019, the FSA published the notices and revised the guidelines of TLAC regulations. Although Nomura is not identified as aG-SIB
as of the date of this annual report, the TLAC Covered SIBs, including Nomura, will be required to meet the TLAC requirement alongside the minimum regulatory requirements set out in the Basel III framework. Specifically, Nomura will be required to meet a minimum TLAC requirement of holding TLAC in an amount at least 16% of our consolidated risk-weighted assets as from March 31, 2021 and at least 18% as from March 31, 2024 as well as at least 6% of the applicable Basel III leverage ratio denominator from March 31, 2021 and at least 6.75% from March 31, 2024.Furthermore, according to the FSA’s revised policy published in April 2018, which is subject to change based on future international discussions, the preferred resolution strategy for the TLAC Covered SIBs is Single Point of Entry (“SPE”) resolution, in which resolution powers are applied to the top of a group by a single national resolution authority (i.e., the FSA), although the actual measures to be taken will be determined on abasis considering the actual condition of the relevant the TLAC Covered SIBs in crisis.
case-by-case
To implement this SPE resolution strategy effectively, the FSA requires holding companies of the TLAC Covered SIBs (“Domestic Resolution Entities”) to (i) meet the minimum external TLAC requirements and (ii) cause their material subsidiaries that are designated as systemically important by the FSA, including but not limited to certain material
sub-groups
as provided in the FSB’s TLAC standard, to maintain a certain level of capital and debt recognized by the FSA as having loss-absorbing and recapitalization capacity, or Internal TLAC.In addition, the TLAC Covered SIBs’ Domestic Resolution Entities will be allowed to count the amount equivalent to 2.5% of their consolidated risk-weighted assets from the implementation date of the TLAC requirements in Japan (March 31, 2021 for Nomura) and 3.5% of their consolidated risk-weighted assets from 3 years after the implementation date (March 31, 2024 for Nomura) as our external TLAC, considering the Japanese Deposit Insurance Fund Reserves.
It is likely that the FSA’s regulation and notice will be revised further to be in line with a series of rules and standards proposed by the Basel Committee, FSB or International Organization of Securities Commissions.
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Credit Ratings
The cost and availability of unsecured funding are generally dependent on credit ratings. Our long-term and short-term debt is rated by several recognized credit rating agencies. We believe that our credit ratings include the credit ratings agencies’ assessment of the general operating environment, our positions in the markets in which we operate, reputation, earnings structure, trend and volatility of our earnings, risk management framework, liquidity and capital management. An adverse change in any of these factors could result in a downgrade of our credit ratings, and that could, in turn, increase our borrowing costs and limit our access to the capital markets or require us to post additional collateral and permit counterparties to terminate transactions
pursuant to certain contractual obligations. In addition, our credit ratings can have a significant impact on certain of our trading revenues, particularly in those businesses where longer term counterparty performance is critical, such as OTC derivative transactions.
On May 13, 2020,September 2, 2021, Fitch Ratings placedremoved the negative watch on the bbb+ viability ratings of the Company and NSC on negative watch. Fitch Ratings affirmed the Issuer Default Rating atA-NSC.and the Outlook at Stable.
As of May 28, 2020,20, 2022, the credit ratings of the Company and NSC were as follows.
Nomura Holdings, Inc. | Short-term Debt | Long-term Debt | |||||||
S&P Global Ratings | A-2 | BBB+ (Stable) | |||||||
Moody’s Investors Service | — | Baa1 (Negative) | |||||||
Fitch Ratings | F1 | A- (Stable) | |||||||
Rating and Investment Information, Inc. | a-1 | ||||||||
Japan Credit Rating Agency, Ltd. | — | AA- (Stable) | |||||||
Nomura Securities Co., Ltd. | Short-term Debt | Long-term Debt | |||||||
S&P Global Ratings | A-2 | A- (Stable) | |||||||
Moody’s Investors Service | P-2 | A3 (Negative) | |||||||
Fitch Ratings | F1 | A- (Stable) | |||||||
Rating and Investment Information, Inc. | a-1 | A+ (Stable) | |||||||
Japan Credit Rating Agency, Ltd. | — | AA- (Stable) | |||||||
Both Rating and Investment Information, Inc. and Japan Credit Rating Agency, Ltd. are credit rating agencies nationally recognized in Japan. We rely on, or utilize, credit ratings on our long-term and short-term debt provided by these Japanese credit rating agencies, as well as S&P Global Ratings, Moody’s Investors Service, and Fitch Ratings for unsecured funding and other financing purposes and also for our trading and other business activities. Within the rating classification system of Rating and Investment Information, Inc.,
“a-1”
is the highest of five categories for short-term debt and indicates “a strong degree of certainty regarding debt repayment”; and “A” is the third highest of nine categories for long-term debt and indicates “a high degree of certainty regarding debt repayment with excellence in specific component factors”, with a plus (+) or minus (-) sign added to a rating in that category to indicate its relative standing within that category. Within the rating classification system of Japan Credit Rating Agency, Ltd., “AA” is the second highest of eleven categories for long-term debt and indicates “a very high level of capacity to honor the financial commitment on the obligation”, with a plus (+) or minus (-) sign added to a rating in that category to indicate its relative standing within that category.There has been no change to the ratings in the above table since the date indicated.
The following table presents selected financial information as of and for the years ended March 31, 2018, 2019, 2020, 2021 and 2022 which is derived from our consolidated financial statements.
Millions of yen, except per share data and percentages | ||||||||||||||||||||
Year ended March 31 | ||||||||||||||||||||
2018 | 2019 | 2020 | 2021 | 2022 | ||||||||||||||||
Statement of income data: | ||||||||||||||||||||
Revenue | ¥ | 1,972,158 | ¥ | 1,835,118 | ¥ | 1,952,482 | ¥ | 1,617,235 | ¥ | 1,593,999 | ||||||||||
Interest expense | 475,189 | 718,348 | 664,653 | 215,363 | 230,109 | |||||||||||||||
Net revenue | 1,496,969 | 1,116,770 | 1,287,829 | 1,401,872 | 1,363,890 | |||||||||||||||
Non-interest expenses | 1,168,811 | 1,154,471 | 1,039,568 | 1,171,201 | 1,137,267 | |||||||||||||||
Income (loss) before income taxes | 328,158 | (37,701 | ) | 248,261 | 230,671 | 226,623 | ||||||||||||||
Income tax expense | 103,866 | 57,010 | 28,894 | 70,274 | 80,090 | |||||||||||||||
Net income (loss) | ¥ | 224,292 | ¥ | (94,711 | ) | ¥ | 219,367 | ¥ | 160,397 | ¥ | 146,533 | |||||||||
Less: Net income attributable to noncontrolling interests | 4,949 | 5,731 | 2,369 | 7,281 | 3,537 | |||||||||||||||
Net income (loss) attributable to NHI shareholders | ¥ | 219,343 | ¥ | (100,442 | ) | ¥ | 216,998 | ¥ | 153,116 | ¥ | 142,996 | |||||||||
Balance sheet data (period end): | ||||||||||||||||||||
Total assets | ¥ | 40,343,947 | ¥ | 40,969,439 | ¥ | 43,999,815 | ¥ | 42,516,480 | ¥ | 43,412,156 | ||||||||||
Total NHI shareholders’ equity | 2,749,320 | 2,631,061 | 2,653,467 | 2,694,938 | 2,914,605 | |||||||||||||||
Total equity | 2,799,824 | 2,680,793 | 2,731,264 | 2,756,451 | 2,972,803 | |||||||||||||||
Common stock | 594,493 | 594,493 | 594,493 | 594,493 | 594,493 | |||||||||||||||
Per share data: | ||||||||||||||||||||
Net income (loss) attributable to NHI shareholders—basic | ¥ | 63.13 | ¥ | (29.90 | ) | ¥ | 67.76 | ¥ | 50.11 | ¥ | 46.68 | |||||||||
Net income (loss) attributable to NHI shareholders—diluted | 61.88 | (29.92 | ) | 66.20 | 48.63 | 45.23 | ||||||||||||||
Total NHI shareholders’ equity (1) | 810.31 | 794.69 | 873.26 | 879.79 | 965.80 | |||||||||||||||
Cash dividends (1) | 20.00 | 6.00 | 20.00 | 35.00 | 22.00 | |||||||||||||||
Cash dividends in USD (2) | $ | 0.19 | $ | 0.05 | $ | 0.19 | $ | 0.32 | $ | 0.18 | ||||||||||
Weighted average number of shares outstanding (in thousands) (3) | 3,474,593 | 3,359,565 | 3,202,370 | 3,055,526 | 3,063,524 | |||||||||||||||
Return on equity (4) : | 7.9 | % | (3.7 | %) | 8.2 | % | 5.7 | % | 5.1 | % | ||||||||||
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| (1) | Calculated using the number of shares outstanding at year end. |
| (2) | Calculated using the Japanese Yen—U.S. Dollar exchange rate as of the respective fiscal year end date, the noon buying rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York. |
| (3) | The number shown is used to calculate basic earnings per share. |
| (4) | Calculated as net income (loss) attributable to NHI shareholders divided by total NHI shareholders’ equity. |
Regulatory Capital Requirements
Many of our business activities are subject to statutory capital requirements, including those of Japan, the U.S., the U.K. and certain other countries in which we operate. For further discussion on statutory capital requirements, see Note 18 “” in our consolidated financial statements included in this annual report.
Regulatory requirements
Translation Exposure
A significant portion of our business is conducted in currencies other than Japanese Yen—most significantly, U.S. Dollars, British pounds and Euros. We prepare financial statements of each of our consolidated subsidiaries in its functional currency, which is the currency of the primary economic environment in which the entity operates. Translation exposure is the risk arising from the effect of fluctuations in exchange rates on the net assets of our foreign subsidiaries. Translation exposure is not recognized in our consolidated statements of income unless and until we dispose of, or liquidate, the relevant foreign subsidiary.
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,business.
Leveraged Finance
We provide loans to clients in connection with leveragedengage in a variety ofoff-balancesheet arrangements withoff-balancesheet entities which may have an impactboth funded and unfunded exposures on Nomura’s future financial position and performance.these transactions.
buy-outs
and leveragedbuy-ins.
As this type of financing is usually initially provided through a commitment, we Millions of yen | ||||||||||||
March 31, 2022 | ||||||||||||
Funded | Unfunded | Total | ||||||||||
Europe | ¥ | 6,361 | ¥ | 69,040 | ¥ | 75,401 | ||||||
Americas | 17,370 | 106,915 | 124,285 | |||||||||
Asia and Oceania | 10,448 | 27,289 | 37,737 | |||||||||
Total | ¥ | 34,179 | ¥ | 203,244 | ¥ | 237,423 | ||||||
Special Purpose Entities (“SPEs”)
Our involvement with these entities includes structuring, underwriting, distributing and selling debt instruments and beneficial interests issued by these entities, subject to prevailing market conditions. In connection with our securitization and equity derivative activities, we also act as a transferor of financial assets to these entities, as well as, underwriter, distributor and seller of asset-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 ofoff-balancesheet arrangements involvement with SPEs include guarantee agreements and derivative contracts. Significant involvement is assessed based on all
66
For further information about transactionsdiscussion on Nomura’s involvement with VIEs,variable interest entities, see Note 6 “” in our consolidated financial statements included in this annual report.
Securitizations and Variable Interest Entities
See Note 1“InStandby letters of credit and other guarantees:In connection with our banking and financing activities, we enter into various guarantee arrangements with counterparties in the form of standby letters of credit and other guarantees, which generally have fixed expiration dates.Long-term borrowings and contractual interest payments:In connection with our operating activities, we issue Japanese Yen andnon-JapaneseYen denominated long-term borrowings which incur variable and fixed interest payments in accordance with our funding policy.78
Summary of accounting policies: New accounting pronouncements adopted during the ordinary course of our business, we enter into a variety of contractual obligations and contingent commitments, which may require future payments. These arrangements include:
Deferred Tax Assets
Details of deferred tax assets and guarantees.liabilities
The contractual amountsfollowing table presents details of commitments to extend credit representdeferred tax assets and liabilities reported within, respectively, in the maximum amounts at risk should the contracts be fully drawn upon, should the counterparties default, and assuming the valueconsolidated balance sheets as 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 our clients’ creditworthiness and the value of collateral held. We evaluate each client’s creditworthiness on acase-by-casebasis. The amount of collateral obtained, if deemed necessary by us upon extension of credit, is based on management’s credit evaluation of the counterparty.March 31, 2022.
Other assets
—
Other and Other liabilities
Millions of yen | ||||
March 31, 2022 | ||||
Deferred tax assets | ||||
Depreciation, amortization and valuation of fixed assets | ¥ | 30,441 | ||
Investments in subsidiaries and affiliates | 21,390 | |||
Valuation of financial instruments | 102,021 | |||
Accrued pension and severance costs | 20,492 | |||
Other accrued expenses and provisions | 79,061 | |||
Operating losses | 370,481 | |||
Lease liabilities | 49,060 | |||
Other | 15,425 | |||
Gross deferred tax assets | 688,371 | |||
Less — | (466,145 | ) | ||
Total deferred tax assets | 222,226 | |||
Deferred tax liabilities | ||||
Investments in subsidiaries and affiliates | 91,040 | |||
Valuation of financial instruments | 85,301 | |||
Undistributed earnings of foreign subsidiaries | 2,745 | |||
Valuation of fixed assets | 23,962 | |||
Right-of-use | 48,519 | |||
Other | 7,044 | |||
Total deferred tax liabilities | 258,611 | |||
Net deferred tax assets (liabilities) | ¥ | (36,385 | ) | |
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.
B. 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
67
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.
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 March 31, 2022, our liquidity portfolio was ¥7,074.2 billion which sufficiently met liquidity requirements under the stress scenarios.
The following table presents information regarding amounts and timinga breakdown of our future contractual obligations and contingent commitmentsliquidity portfolio by type of financial assets as of March 31, 2020.2021 and 2022 and averages maintained for the years ended March 31, 2021 and 2022. Yearly averages are calculated using
month-end
amounts.Millions of yen | ||||||||||||||||||||
Total contractual amount | Years to maturity | |||||||||||||||||||
Less than 1 year | 1 to 3 years | 3 to 5 years | More than 5 years | |||||||||||||||||
Standby letters of credit and other guarantees | ¥ | 2,351 | ¥ | 10 | ¥ | 1,184 | ¥ | 1,156 | ¥ | 1 | ||||||||||
Long-term borrowings (1) | 7,720,941 | 778,008 | 1,224,258 | 1,645,653 | 4,073,022 | |||||||||||||||
Contractual interest payments (2) | 458,021 | 74,270 | 125,210 | 91,478 | 167,063 | |||||||||||||||
Operating lease commitments (3) | 215,916 | 41,270 | 56,349 | 43,751 | 74,546 | |||||||||||||||
Purchase obligations (4) | 126,949 | 20,523 | 35,720 | 8,392 | 62,314 | |||||||||||||||
Commitments to extend credit (5) | 2,247,433 | 1,399,086 | 139,295 | 167,322 | 541,730 | |||||||||||||||
Commitments to invest | 15,278 | 491 | 4 | 5,628 | 9,155 | |||||||||||||||
Total | ¥ | 10,786,889 | ¥ | 2,313,658 | ¥ | 1,582,020 | ¥ | 1,963,380 | ¥ | 4,927,831 | ||||||||||
Billions of yen | ||||||||||||||||
Average for year ended March 31, 2021 | March 31, 2021 | Average for year ended March 31, 2022 | March 31, 2022 | |||||||||||||
Cash, cash equivalents and time deposits (1) | ¥ | 2,775.9 | ¥ | 2,765.0 | ¥ | 3,151.6 | ¥ | 2,997.5 | ||||||||
Government debt securities | 3,082.8 | 2,641.2 | 3,629.8 | 3,674.2 | ||||||||||||
Others (2) | 254.0 | 252.1 | 298.3 | 402.5 | ||||||||||||
Total liquidity portfolio | ¥ | 6,112.7 | ¥ | 5,658.3 | ¥ | 7,079.7 | ¥ | 7,074.2 | ||||||||
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| (1) | Cash, cash equivalents, and time deposits include nostro balances and deposits with both central banks and market counterparties that are readily available to support the liquidity position of Nomura. |
| (2) | Others include other liquid financial assets such as money market funds and U.S. agency securities. |
The following table presents a breakdown of our liquidity portfolio by currency as of March 31, 2021 and 2022 and averages maintained for the years ended March 31, 2021 and 2022. Yearly averages are calculated using
month-end
amounts.Billions of yen | ||||||||||||||||
Average for year ended March 31, 2021 | March 31, 2021 | Average for year ended March 31, 2022 | March 31, 2022 | |||||||||||||
Japanese Yen | �� | 2,298.1 | ¥ | 966.5 | ¥ | 1,913.7 | ¥ | 1,409.8 | ||||||||
U.S. Dollar | 2,441.2 | 3,367.1 | 3,567.3 | 3,924.1 | ||||||||||||
Euro | 795.1 | 793.5 | 792.3 | 868.5 | ||||||||||||
British Pound | 405.4 | 333.8 | 578.3 | 597.5 | ||||||||||||
Others (1) | 172.9 | 197.5 | 228.1 | 274.3 | ||||||||||||
Total liquidity portfolio | ¥ | 6,112.7 | ¥ | 5,658.3 | ¥ | 7,079.7 | ¥ | 7,074.2 | ||||||||
| (1) | Includes other currencies such as the Australian dollar, the Canadian dollar and the Swiss franc. |
We assess our liquidity portfolio requirements globally as well as by each major operating entity in the Nomura Group. We primarily maintain our liquidity portfolio at Nomura Holdings, Inc. (“NHI”) and Nomura Securities Co. Ltd. (“NSC”), our other major broker-dealer subsidiaries, our bank subsidiaries, and other group entities. In determining the amounts and entities which hold this liquidity portfolio, we consider legal, regulatory and tax restrictions which may impact our ability to freely transfer liquidity across different entities in the Nomura Group. For more information regarding regulatory restrictions, see Note 18 “” in our consolidated financial statements included within this annual report.
Regulatory requirements
The following table presents a breakdown of our liquidity portfolio by entity as of March 31, 2021 and 2022.
Billions of yen | ||||||||
March 31, 2021 | March 31, 2022 | |||||||
NHI and NSC (1) | ¥ | 981.8 | ¥ | 1,395.4 | ||||
Major broker-dealer subsidiaries | 2,632.6 | 3,118.5 | ||||||
Bank subsidiaries (2) | 752.6 | 1,008.5 | ||||||
Other affiliates | 1,291.3 | 1,551.8 | ||||||
Total liquidity portfolio | ¥ | 5,658.3 | ¥ | 7,074.2 | ||||
| (1) | NSC, a broker-dealer located in Japan, holds an account with the Bank of Japan (“BOJ”) and has direct access to the BOJ Lombard facility through which same day funding is available for our securities pool. Any liquidity surplus at NHI is lent to NSC via short-term intercompany loans, which can be unwound immediately when needed. |
| (2) | Includes Nomura Bank International plc (“NBI”), Nomura Singapore Limited and Nomura Bank Luxembourg S.A. |
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2. Utilization of Unencumbered Assets as Part of Our Liquidity Portfolio.
In addition to our liquidity portfolio, we had ¥2,665.7 billion of other 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 as of March 31, 2022 was ¥9,739.9 billion, which represented 332.2of our total unsecured debt maturing within one year.
%
Billions of yen | ||||||||
March 31, 2021 | March 31, 2022 | |||||||
Net liquidity value of other unencumbered assets | ¥ | 2,771.6 | ¥ | 2,665.7 | ||||
Liquidity portfolio | 5,658.3 | 7,074.2 | ||||||
Total | ¥ | 8,429.9 | ¥ | 9,739.9 | ||||
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. The proportion of our
non-Japanese
Yen denominated long-term debt increased to 51.4% of total long-term debt outstanding as of March 31, 2022 from 47.2% as of March 31, 2021.3.1 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 2022.
Billions of yen | ||||||||
March 31, 2021 | March 31, 2022 | |||||||
Short-term bank borrowings | ¥ | 265.8 | ¥ | 148.0 | ||||
Other loans | 138.7 | 228.1 | ||||||
Commercial paper | 460.0 | 131.9 | ||||||
Deposits at banking entities | 1,149.9 | 1,520.7 | ||||||
Certificates of deposit | 83.6 | 127.8 | ||||||
Debt securities maturing within one year | 831.5 | 775.6 | ||||||
Total short-term unsecured debt | ¥ | 2,929.5 | ¥ | 2,932.1 | ||||
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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, NSC, Nomura Europe Finance N.V., NBI, 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 2022.
Billions of yen | ||||||||
March 31, 2021 | March 31, 2022 | |||||||
Long-term deposits at banking entities | ¥ | 109.0 | ¥ | 112.3 | ||||
Long-term bank borrowings | 2,635.2 | 2,820.5 | ||||||
Other loans | 74.2 | 219.5 | ||||||
Debt securities (1) | 3,877.9 | 4,745.8 | ||||||
Total long-term unsecured debt | ¥ | 6,696.3 | ¥ | 7,898.1 | ||||
| (1) | Excludes long-term Consolidation Long-term borrowings Transfer and |
On this basis, the average maturity of our structured loans and structured notes with maturities longer than one year was 10.1 years as of March 31, 2022. The average maturity of our entire long-term debt with maturities longer than one year including plain vanilla debt securities and borrowings, was 7.2 years as of March 31, 2022.
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We typically fund our trading activities through secured borrowings, repurchase agreements and Senior Management.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 “” in our consolidated financial statements.
Collateralized transactions
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 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 as of June 30, 2020.and subsidiary levels. We call this risk analysis our Maximum Cumulative Outflow (“MCO”) framework.
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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 Company’s Executive Officers asliquidation of Juneassets for 30 2020.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 March 31, 2022, 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; andLegal and regulatory requirements that can restrict the flow of funds between entities in the Nomura Group.
6. Contingency Funding Plan
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
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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 (on October 31, 2014). 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 March 31, 2022 was 241.7%, 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 it has been implemented from the end of September 2021. Nomura’s NSFR as of March 31, 2022 was compliant with the regulatory requirements.Cash Flows
Nomura’s compensation program for statutory officers is outlinedcash flows are primarily generated from operating activities undertaken in connection with our client flows and trading and from financing activities which are closely related to such activities. As a financial institution, growth in operations tends to result in cash outflows from operating activities as following.well as investing activities. For the year ended March 2021, we recorded net cash inflows from operating activities and net cash outflow from investing and financing activities. For the year ended March 2022, we recorded net cash outflows from operating activities and investing activities and net cash inflow from financing activities as discussed in the comparative analysis below.
Billions of yen | ||||||||
Year Ended March 31 | ||||||||
2021 | 2022 | |||||||
Net cash provided by (used in) operating activities | ¥ | 665.8 | ¥ | (1,368.7 | ) | |||
Net income | 160.4 | 146.5 | ||||||
Trading assets and private equity and debt investments | 1,468.4 | 1,254.3 | ||||||
Trading liabilities | 777.7 | (284.7 | ) | |||||
Securities purchased under agreements to resell, net of securities sold under agreements to repurchase | (1,453.9 | ) | (2,220.5 | ) | ||||
Securities borrowed, net of securities loaned | (1,242.5 | ) | 595.1 | |||||
Other, net | 955.7 | (859.4 | ) | |||||
Cash flows from investing activities: | (139.0 | ) | (45.3 | ) | ||||
Cash flows from financing activities: | (269.9 | ) | 1,070.7 | |||||
Long-term borrowings, net | (1.0 | ) | 1,225.0 | |||||
Decrease in short-term borrowings, net | (325.2 | ) | (475.5 | ) | ||||
Increase in deposits received at banks, net | 126.2 | 448.1 | ||||||
Other, net | (69.9 | ) | (126.9 | ) | ||||
Effect of exchange rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents | 60.8 | 149.7 | ||||||
Net increase in cash, cash equivalents, restricted cash and restricted cash equivalents | 317.7 | (193.6 | ) | |||||
Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of the year | 3,192.3 | 3,510.0 | ||||||
Cash, cash equivalents, restricted cash and restricted cash equivalents at end of the year | ¥ | 3,510.0 | ¥ | 3,316.4 | ||||
See the percentage of variable compensation which is linked to organizational and individual performance.
For the year ended March 31, 2022, our cash, cash equivalents, restricted cash and deferred compensation, which are performance-linked compensations.restricted cash equivalents decreased by ¥193.6 billion to ¥3,316.4 billion. Net cash of ¥1,070.7 billion was provided by financing activities due to net cash inflows of ¥1,225.0 billion fromIn determining performance-linked compensation, following indicators are referred: Income before income taxes, Net income attributable to NHI shareholders (Diluted), Cash dividends, and share prices. In addition to referring these financial indicators, the total compensation is determined by comprehensively considering individual responsibility and performance, as well as trends of global competitors and industry-wide compensation movements.(b-1)Cash BonusesA proportion of variable compensation is delivered in the form of a cash payment following the end of the fiscal year. Individuals with higher levels of compensation receive a lower proportion in cash. This is in line with regulatory guidance, and while the policy is global in application, specific local regulatory requirements are adhered to when deciding on proportions of cash bonuses.(b-2)Deferred CompensationCertain senior management and employees whose compensation is above a certain level receive a portion of their variable compensation through deferred compensation awards. By linking the economic value of a. As part of compensationtrading activities, while there were net cash inflows of ¥969.6 billion mainly due to the pricea decrease inthey were offset by net cash outflows of the Company’s stock¥1,625.4 billion from repo transactions and imposing certain vesting conditions,securities borrowed and loaned transactions such plans will:as, andalign employee interest with thatSecurities borrowed, net of shareholders;Securities loaned.increase employee retention through providing opportunities to grow personal wealth over the period from grant to vesting; andencourage cross-divisional and cross-regional collaboration by focusing individuals on a common goal of long-term increase in corporate value.The deferral period over which our deferred compensation awards vest is generally three or more years. This is in line with the “Principles for Sound Compensation Practices” issued by the Japanese Financial Stability Board which recommends, among other things, a deferral period of three or more years.75All current deferred compensation awards except Plan A awards include “Full Career Retirement” (“FCR”) provisions which permit recipients of the awards to continue to vest in the awards upon voluntary termination if certain criteria are met.92
Long-term borrowings
Trading assets and private equity and debt investments,
Securities purchased under agreements to resell, Securities sold under agreements to repurchase
As a result, net cash of these benefits, deferred compensation awards are also recommended¥1,368.7 billion was used in operating activities.
For the year ended March 31, 2021, our cash, cash equivalents, restricted cash and restricted cash equivalents increased by regulators¥317.7 billion to ¥3,510.0 billion. Net cash of ¥269.9 billion was used in the key jurisdictionsfinancing activities due to net cash outflows of ¥325.2 billion from. As part of trading activities, while there were net cash inflows of ¥2,246.1 billion mainly due to a decrease in which we operate.they were offset by net cash outflows of ¥2,696.4 billion from repo transactions and securities borrowed and loaned transactions such as, andAs a result, net cash of ¥665.8 billion was provided by operating activities.
Short-term borrowings
Trading assets and Private equity and debt investments,
Securities purchased under agreements to resell, Securities sold under agreements to repurchase
Securities borrowed, net of Securities loaned.
Balance Sheet and Financial Leverage
Total assets as of March 31, 2022, were ¥43,412.2 billion, an increase of ¥895.7 billion compared with ¥42,516.5 billion as of March 31, 2021, reflecting primarily an increase inTotal liabilities as of March 31, 2022, were ¥40,439.4 billion, an increase of ¥679.3 billion compared with ¥39,760.0 billion as of March 31, 2021, reflecting primarily an increase in. NHI shareholders’ equity as of March 31, 2022 was ¥2,914.6 billion, an increase of ¥219.7 billion compared with ¥2,694.9 billion as of March 31, 2021, primarily due to an increase in
Securities purchased under agreements to resell
.
Long-term borrowings
Accumulated other
comprehensive income.
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.
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 summarizes the main featurespresents NHI shareholders’ equity, total assets, adjusted assets and leverage ratios as of the key types of deferred compensation awards currently granted by Nomura to senior managementMarch 31, 2021 and employees. Unless otherwise stated, deferred compensation awards are generally reduced, forfeited or clawed back in the event of termination of employment, material conduct issues, material downturns in performance of the Nomura Group and/or a material failure of risk management.2022.
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Total assets increased by 2.1% reflecting primarily an increase in Securities purchased under agreements to resell. Accumulated other comprehensive income Adjusted assets increased primarily due to an increase in Loans receivable Capital Management Capital Management Policy We seek to enhance shareholder value and to capture growing business opportunities by maintaining sufficient levels of capital. We will continue to review our levels of capital as appropriate, taking into consideration the economic risks inherent to operating our businesses, the regulatory requirements, and maintaining our ratings necessary to operate businesses globally. Dividends We believe that raising corporate value over the long term and paying dividends is essential to rewarding shareholders. We will strive to pay dividends using a consolidated pay-out ratio of 30 percent of each semi-annual consolidated earnings as a key indicator.Dividend payments are determined taking into account a comprehensive range of factors such as the tightening of Basel regulations and Additionally we will aim for a total payout ratio, which includes dividends and share buybacks, of at least 50 percent. With respect to retained earnings, in order to implement measures to adapt to regulatory changes and to increase shareholder value, we seek to efficiently invest in business areas where high profitability and growth may reasonably be expected, including the development and expansion of infrastructure. Dividends for the Fiscal Year Based on our Capital Management Policy described above, we paid a dividend of ¥8 per share to shareholders of record as of September 30, 2021 and have decided to pay a dividend of ¥14 per share to shareholders of record as of March 31,
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
Company in April 2011. Since then, we have been calculating our consolidated capital adequacy ratio according to 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.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 March 31, 2022, our common equity Tier 1 capital ratio is 17.22%, Tier 1 capital ratio is 19.60% and consolidated capital adequacy ratio is 19.60% and we are in compliance with the requirement for each ratio set out in the Capital Adequacy Notice on Final Designated Parent Company, etc. (required level including applicable minimum consolidated capital buffers as of March 31, 2022 is 7.51% for the common equity Tier 1 capital ratio, 9.01% for the Tier 1 capital ratio and 11.01% for the 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 March 31, 2022, our external TLAC as a percentage of risk-weighted assets is 30.72% 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 March 31, 2021 and March 31, 2022.
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 using the Internal Models Approach. 78 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 annual report can compare our capital position against those of other financial groups to which Basel III is applied. Our management receives and reviews these capital ratios on a regular basis. 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 these 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 coordination with the monetary policy of the Bank of Japan in response to the impact of theCOVID-19 pandemic, the FSA published amendments to the Notice on Consolidated Leverage Ratio on June 2020 and March 2021. Under these amendments, deposits with the Bank of 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, 2022. In March 2022, the FSA announced this measure will be extended to March 31, 2024. As of March 31, 2022, our consolidated leverage ratio is 5.98%.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 March 31, 2022, our external TLAC as a percentage of leverage ratio exposure measure is 10.30% and we are in compliance with the requirement set out in the TLAC Notification. Regulatory changes which affect us The Basel Committee has issued a series of announcements regarding a Basel III program designed to strengthen the regulatory capital framework in light of weaknesses revealed by the financial crises. The following is a summary of the proposals which are most relevant to us. On December 16, 2010, in an effort to promote a more resilient banking sector, the Basel Committee issued Basel III, that is, “International framework for liquidity risk measurement, standards and monitoring” and “A global regulatory framework for more resilient banks and banking systems”. They include raising the quality, consistency and transparency of the capital base; strengthening the risk coverage of the capital framework such as the implementation of a credit value adjustment (“CVA”) charge for OTC derivative trades; introducing a leverage ratio requirement as a supplemental measure to the risk-based framework; introducing a series of measures to address concerns over the “procyclicality” of the current framework; and introducing a liquidity standard including a 30-day liquidity coverage ratio as well as the net stable funding ratio to measure stability of financing structure. These standards were implemented from 2013, which includes transitional treatment, (i.e., they are phased in gradually from 2013). In addition, the Basel Committee has issued interim rules for the capitalization of bank exposures to central counterparties (“CCPs”) on July 25, 2012, which came into effect in 2013 as part of Basel III. Moreover, in addition to Basel III leverage ratio framework under which we started the calculation and disclosure of consolidated leverage ratio as above, a series of final standards on the regulatory frameworks such as capital requirements for banks’ equity investments in funds, the standardized approach for79 measuring counterparty credit risk exposures, capital requirements for bank exposures to CCPs, supervisory framework for measuring and controlling large exposures, and revisions to the securitization framework, and revised framework for market risk capital requirements have been published by the Basel Committee. At the G-20 summit in November 2011, the Financial Stability Board (“FSB”) and the Basel Committee announced the list of global systemically important banks(“G-SIBs”) and the additional requirements to theG-SIBs including the recovery and resolution plan. The group ofG-SIBs have been updated annually and published by the FSB each November. Since November 2011, we have not been designated as aG-SIBs. On the other hand, the FSB and the Basel Committee were asked to work on extending the framework forG-SIBs to domestic systemically important financial institutions(“D-SIBs”) and the Basel Committee developed and published a set of principles on the assessment methodology and the higher loss absorbency requirement forD-SIBs. In December 2015, the FSA identified us as aD-SIB and required additional capital charge of 0.5% after March 2016, with3-year transitional arrangement.In November 2015, the FSB issued the final TLAC standard for G-SIBs. The TLAC standard has been designed so that failingG-SIBs will have sufficient loss-absorbing and recapitalization capacity available in resolution for authorities to implement an orderly resolution. In response to the FSB’s publication of the TLAC standard, in April 2016, the FSA published its policy to develop the TLAC framework in Japan applicable to JapaneseG-SIBs and, in April 2018, revised such policy to apply the TLAC requirements in Japan not only to JapaneseG-SIBs but also to JapaneseD-SIBs that are deemed (i) of particular need for a cross-border resolution arrangement and (ii) of particular systemic significance to Japanese financial system if they fail. In the revised policy, the JapaneseG-SIBs and Nomura (“TLAC Covered SIBs”) would be subject to the TLAC requirements in Japan. On March 2019, the FSA published the notices and revised the guidelines of TLAC regulations. Although Nomura is not identified as aG-SIB as of the date of this annual report, the TLAC Covered SIBs, including Nomura, will be required to meet the TLAC requirement alongside the minimum regulatory requirements set out in the Basel III framework. Specifically, Nomura will be required to meet a minimum TLAC requirement of holding TLAC in an amount at least 16% of our consolidated risk-weighted assets as from March 31, 2021 and at least 18% as from March 31, 2024 as well as at least 6% of the applicable Basel III leverage ratio denominator from March 31, 2021 and at least 6.75% from March 31, 2024.Furthermore, according to the FSA’s revised policy published in April 2018, which is subject to change based on future international discussions, the preferred resolution strategy for the TLAC Covered SIBs is Single Point of Entry (“SPE”) resolution, in which resolution powers are applied to the top of a group by a single national resolution authority (i.e., the FSA), although the actual measures to be taken will be determined on a case-by-case To implement this SPE resolution strategy effectively, the FSA requires holding companies of the TLAC Covered SIBs (“Domestic Resolution Entities”) to (i) meet the minimum external TLAC requirements and (ii) cause their material subsidiaries that are designated as systemically important by the FSA, including but not limited to certain material sub-groups as provided in the FSB’s TLAC standard, to maintain a certain level of capital and debt recognized by the FSA as having loss-absorbing and recapitalization capacity, or Internal TLAC.In addition, the TLAC Covered SIBs’ Domestic Resolution Entities will be allowed to count the amount equivalent to 2.5% of their consolidated risk-weighted assets from the implementation date of the TLAC requirements in Japan (March 31, 2021 for Nomura) and 3.5% of their consolidated risk-weighted assets from 3 years after the implementation date (March 31, 2024 for Nomura) as our external TLAC, considering the Japanese Deposit Insurance Fund Reserves. It is likely that the FSA’s regulation and notice will be revised further to be in line with a series of rules and standards proposed by the Basel Committee, FSB or International Organization of Securities Commissions. 80 Credit Ratings The cost and availability of unsecured funding are generally dependent on credit ratings. Our long-term and short-term debt is rated by several recognized credit rating agencies. We believe that our credit ratings include the credit ratings agencies’ assessment of the general operating environment, our positions in the markets in which we operate, reputation, earnings structure, trend and volatility of our earnings, risk management framework, liquidity and capital management. An adverse change in any of these factors could result in a downgrade of our credit ratings, and that could, in turn, increase our borrowing costs and limit our access to the capital markets or require us to post additional collateral and permit counterparties to terminate transactions pursuant to certain contractual obligations. In addition, our credit ratings can have a significant impact on certain of our trading revenues, particularly in those businesses where longer term counterparty performance is critical, such as OTC derivative transactions. On September 2, 2021, Fitch Ratings removed the negative watch on the bbb+ viability ratings of the Company and NSC. As of May 20, 2022, the credit ratings of the Company and NSC were as follows.
Both Rating and Investment Information, Inc. and Japan Credit Rating Agency, Ltd. are credit rating agencies nationally recognized in Japan. We rely on, or utilize, credit ratings on our long-term and short-term debt provided by these Japanese credit rating agencies, as well as S&P Global Ratings, Moody’s Investors Service, and Fitch Ratings for unsecured funding and other financing purposes and also for our trading and other business activities. Within the rating classification system of Rating and Investment Information, Inc., “a-1” is the highest of five categories for short-term debt and indicates “a strong degree of certainty regarding debt repayment”; and “A” is the third highest of nine categories for long-term debt and indicates “a high degree of certainty regarding debt repayment with excellence in specific component factors”, with a plus (+) or minus (-) sign added to a rating in that category to indicate its relative standing within that category. Within the rating classification system of Japan Credit Rating Agency, Ltd., “AA” is the second highest of eleven categories for long-term debt and indicates “a very high level of capacity to honor the financial commitment on the obligation”, with a plus (+) or minus (-) sign added to a rating in that category to indicate its relative standing within that category.There has been no change to the ratings in the above table since the date indicated. Selected Financial Data The following table presents selected financial information as of and for the
65
Regulatory Capital Requirements Many of our business activities are subject to statutory capital requirements, including those of Japan, the U.S., the U.K. and certain other countries in which we operate. For further discussion on statutory capital requirements, see Note 18 “ Regulatory requirements Translation Exposure A significant portion of our business is conducted in currencies other than Japanese Yen—most significantly, U.S. Dollars, British pounds and Euros. We prepare financial statements of each of our consolidated subsidiaries in its functional currency, which is the currency of the primary economic environment in which the entity operates. Translation exposure is the risk arising from the effect of fluctuations in exchange rates on the net assets of our foreign subsidiaries. Translation exposure is not recognized in our consolidated statements of income unless and until we dispose of, or liquidate, the relevant foreign subsidiary. Assets and Liabilities Associated with Investment and Financial Services Business 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 leveragedbuy-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 March 31, 2022.
Special Purpose Entities (“SPEs”) Our involvement with these entities includes structuring, underwriting, distributing and selling debt instruments and beneficial interests issued by these entities, subject to prevailing market conditions. In connection with our securitization and equity derivative activities, we also act as a transferor of financial assets to these entities, as well as, underwriter, distributor and seller of asset-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. 66 For further discussion on Nomura’s involvement with variable interest entities, see Note 6 “ Securitizations and Variable Interest Entities Accounting Developments See Note 1“ Summary of accounting policies: New accounting pronouncements adopted during the current year Deferred Tax Assets Details of deferred tax assets and liabilities The following table presents details of deferred tax assets and liabilities reported within Other assets — Other and Other liabilities
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. B. 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 67 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. 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 March 31, 2022, our liquidity portfolio was ¥7,074.2 billion which sufficiently met liquidity requirements under the stress scenarios. The following table presents a breakdown of our liquidity portfolio by type of financial assets as of March 31, 2021 and 2022 and averages maintained for the years ended March 31, 2021 and 2022. Yearly averages are calculated using month-end amounts.
68
The following table presents a breakdown of our liquidity portfolio by currency as of March 31, 2021 and 2022 and averages maintained for the years ended March 31, 2021 and 2022. Yearly averages are calculated using month-end amounts.
We assess our liquidity portfolio requirements globally as well as by each major operating entity in the Nomura Group. We primarily maintain our liquidity portfolio at Nomura Holdings, Inc. (“NHI”) and Nomura Securities Co. Ltd. (“NSC”), our other major broker-dealer subsidiaries, our bank subsidiaries, and other group entities. In determining the amounts and entities which hold this liquidity portfolio, we consider legal, regulatory and tax restrictions which may impact our ability to freely transfer liquidity across different entities in the Nomura Group. For more information regarding regulatory restrictions, see Note 18 “ Regulatory requirements The following table presents a breakdown of our liquidity portfolio by entity as of March 31, 2021 and 2022.
69 2. Utilization of Unencumbered Assets as Part of Our Liquidity Portfolio. In addition to our liquidity portfolio, we had ¥2,665.7 billion of other 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 as of March 31, 2022 was ¥9,739.9 billion, which represented 332.2 %
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. The proportion of our non-Japanese Yen denominated long-term debt increased to 51.4% of total long-term debt outstanding as of March 31, 2022 from 47.2% as of March 31, 2021.3.1 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 2022.
70 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, NSC, Nomura Europe Finance N.V., NBI, 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 2022.
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. The average maturity for our plain vanilla debt securities and borrowings with maturities longer than one year was 4.4 years as of March 31, 2022. 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 borrowing is likely to be called. The graph below shows the distribution of maturities of our outstanding long-term debt securities and borrowings by the model. On this basis, the average maturity of our structured loans and structured notes with maturities longer than one year was 10.1 years as of March 31, 2022. The average maturity of our entire long-term debt with maturities longer than one year including plain vanilla debt securities and borrowings, was 7.2 years as of March 31, 2022. 71 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 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. 72 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 March 31, 2022, 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; andLegal and regulatory requirements that can restrict the flow of funds between entities in the Nomura Group. 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 73 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 BOJ, 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 (on October 31, 2014). 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 March 31, 2022 was 241.7%, 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 it has been implemented from the end of September 2021. Nomura’s NSFR as of March 31, 2022 was compliant with the regulatory requirements.Cash Flows Nomura’s cash flows are primarily generated from operating activities undertaken in connection with our client flows and trading and from financing activities which are closely related to such activities. As a financial institution, growth in operations tends to result in cash outflows from operating activities as well as investing activities. For the year ended March 2021, we recorded net cash inflows from operating activities and net cash outflow from investing and financing activities. For the year ended March 2022, we recorded net cash outflows from operating activities and investing activities and net cash inflow from financing activities as discussed in the comparative analysis below. 74 The following table presents the summary information on our consolidated cash flows for the years ended March 31, 2021 and 2022.
See the consolidated statements of cash flows in our consolidated financial statements included within this annual report for more detailed information. For the year ended March 31, 2022, our cash, cash equivalents, restricted cash and restricted cash equivalents decreased by ¥193.6 billion to ¥3,316.4 billion. Net cash of ¥1,070.7 billion was provided by financing activities due to net cash inflows of ¥1,225.0 billion from Long-term borrowings Trading assets and private equity and debt investments, Securities purchased under agreements to resell, Securities sold under agreements to repurchase Securities borrowed, net of Securities loaned. For the year ended March 31, 2021, our cash, cash equivalents, restricted cash and restricted cash equivalents increased by ¥317.7 billion to ¥3,510.0 billion. Net cash of ¥269.9 billion was used in financing activities due to net cash outflows of ¥325.2 billion from Short-term borrowings Trading assets and Private equity and debt investments, Securities purchased under agreements to resell, Securities sold under agreements to repurchase Securities borrowed, net of Securities loaned. 75 Balance Sheet and Financial Leverage Total assets as of March 31, 2022, were ¥43,412.2 billion, an increase of ¥895.7 billion compared with ¥42,516.5 billion as of March 31, 2021, reflecting primarily an increase in Securities purchased under agreements to resell . Long-term borrowings Accumulated other comprehensive income. 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. 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 presents NHI shareholders’ equity, total assets, adjusted assets and leverage ratios as of March 31, 2021 and 2022.
Total assets increased by 2.1% reflecting primarily an increase in Securities purchased under agreements to resell. Accumulated other comprehensive income Adjusted assets increased primarily due to an increase in Loans receivable 76 Capital Management Capital Management Policy We seek to enhance shareholder value and to capture growing business opportunities by maintaining sufficient levels of capital. We will continue to review our levels of capital as appropriate, taking into consideration the economic risks inherent to operating our businesses, the regulatory requirements, and maintaining our ratings necessary to operate businesses globally. Dividends We believe that raising corporate value over the long term and paying dividends is essential to rewarding shareholders. We will strive to pay dividends using a consolidated pay-out ratio of 30 percent of each semi-annual consolidated earnings as a key indicator.Dividend payments are determined taking into account a comprehensive range of factors such as the tightening of Basel regulations and other changes to the regulatory environment as well as the Company’s consolidated financial performance. Dividends will in principle be paid on a semi-annual basis with record dates of September 30 and March 31. Additionally we will aim for a total payout ratio, which includes dividends and share buybacks, of at least 50 percent. With respect to retained earnings, in order to implement measures to adapt to regulatory changes and to increase shareholder value, we seek to efficiently invest in business areas where high profitability and growth may reasonably be expected, including the development and expansion of infrastructure. Dividends for the Fiscal Year Based on our Capital Management Policy described above, we paid a dividend of ¥8 per share to shareholders of record as of September 30, 2021 and have decided to pay a dividend of ¥14 per share to shareholders of record as of March 31, 2022. As a result, the total annual dividend will be ¥22 per share. The following table presented the amounts of dividends per share paid by us in respect of the periods indicated:
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 77 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.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 March 31, 2022, our common equity Tier 1 capital ratio is 17.22%, Tier 1 capital ratio is 19.60% and consolidated capital adequacy ratio is 19.60% and we are in compliance with the requirement for each ratio set out in the Capital Adequacy Notice on Final Designated Parent Company, etc. (required level including applicable minimum consolidated capital buffers as of March 31, 2022 is 7.51% for the common equity Tier 1 capital ratio, 9.01% for the Tier 1 capital ratio and 11.01% for the 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 March 31, 2022, our external TLAC as a percentage of risk-weighted assets is 30.72% 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 March 31, 2021 and March 31, 2022.
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 using the Internal Models Approach. 78 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 annual report can compare our capital position against those of other financial groups to which Basel III is applied. Our management receives and reviews these capital ratios on a regular basis. 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 these 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 coordination with the monetary policy of the Bank of Japan in response to the impact of theCOVID-19 pandemic, the FSA published amendments to the Notice on Consolidated Leverage Ratio on June 2020 and March 2021. Under these amendments, deposits with the Bank of 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, 2022. In March 2022, the FSA announced this measure will be extended to March 31, 2024. As of March 31, 2022, our consolidated leverage ratio is 5.98%.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 March 31, 2022, our external TLAC as a percentage of leverage ratio exposure measure is 10.30% and we are in compliance with the requirement set out in the TLAC Notification. Regulatory changes which affect us The Basel Committee has issued a series of announcements regarding a Basel III program designed to strengthen the regulatory capital framework in light of weaknesses revealed by the financial crises. The following is a summary of the proposals which are most relevant to us. On December 16, 2010, in an effort to promote a more resilient banking sector, the Basel Committee issued Basel III, that is, “International framework for liquidity risk measurement, standards and monitoring” and “A global regulatory framework for more resilient banks and banking systems”. They include raising the quality, consistency and transparency of the capital base; strengthening the risk coverage of the capital framework such as the implementation of a credit value adjustment (“CVA”) charge for OTC derivative trades; introducing a leverage ratio requirement as a supplemental measure to the risk-based framework; introducing a series of measures to address concerns over the “procyclicality” of the current framework; and introducing a liquidity standard including a 30-day liquidity coverage ratio as well as the net stable funding ratio to measure stability of financing structure. These standards were implemented from 2013, which includes transitional treatment, (i.e., they are phased in gradually from 2013). In addition, the Basel Committee has issued interim rules for the capitalization of bank exposures to central counterparties (“CCPs”) on July 25, 2012, which came into effect in 2013 as part of Basel III. Moreover, in addition to Basel III leverage ratio framework under which we started the calculation and disclosure of consolidated leverage ratio as above, a series of final standards on the regulatory frameworks such as capital requirements for banks’ equity investments in funds, the standardized approach for79 measuring counterparty credit risk exposures, capital requirements for bank exposures to CCPs, supervisory framework for measuring and controlling large exposures, and revisions to the securitization framework, and revised framework for market risk capital requirements have been published by the Basel Committee. At the G-20 summit in November 2011, the Financial Stability Board (“FSB”) and the Basel Committee announced the list of global systemically important banks(“G-SIBs”) and the additional requirements to theG-SIBs including the recovery and resolution plan. The group ofG-SIBs have been updated annually and published by the FSB each November. Since November 2011, we have not been designated as aG-SIBs. On the other hand, the FSB and the Basel Committee were asked to work on extending the framework forG-SIBs to domestic systemically important financial institutions(“D-SIBs”) and the Basel Committee developed and published a set of principles on the assessment methodology and the higher loss absorbency requirement forD-SIBs. In December 2015, the FSA identified us as aD-SIB and required additional capital charge of 0.5% after March 2016, with3-year transitional arrangement.In November 2015, the FSB issued the final TLAC standard for G-SIBs. The TLAC standard has been designed so that failingG-SIBs will have sufficient loss-absorbing and recapitalization capacity available in resolution for authorities to implement an orderly resolution. In response to the FSB’s publication of the TLAC standard, in April 2016, the FSA published its policy to develop the TLAC framework in Japan applicable to JapaneseG-SIBs and, in April 2018, revised such policy to apply the TLAC requirements in Japan not only to JapaneseG-SIBs but also to JapaneseD-SIBs that are deemed (i) of particular need for a cross-border resolution arrangement and (ii) of particular systemic significance to Japanese financial system if they fail. In the revised policy, the JapaneseG-SIBs and Nomura (“TLAC Covered SIBs”) would be subject to the TLAC requirements in Japan. On March 2019, the FSA published the notices and revised the guidelines of TLAC regulations. Although Nomura is not identified as aG-SIB as of the date of this annual report, the TLAC Covered SIBs, including Nomura, will be required to meet the TLAC requirement alongside the minimum regulatory requirements set out in the Basel III framework. Specifically, Nomura will be required to meet a minimum TLAC requirement of holding TLAC in an amount at least 16% of our consolidated risk-weighted assets as from March 31, 2021 and at least 18% as from March 31, 2024 as well as at least 6% of the applicable Basel III leverage ratio denominator from March 31, 2021 and at least 6.75% from March 31, 2024.Furthermore, according to the FSA’s revised policy published in April 2018, which is subject to change based on future international discussions, the preferred resolution strategy for the TLAC Covered SIBs is Single Point of Entry (“SPE”) resolution, in which resolution powers are applied to the top of a group by a single national resolution authority (i.e., the FSA), although the actual measures to be taken will be determined on a case-by-case To implement this SPE resolution strategy effectively, the FSA requires holding companies of the TLAC Covered SIBs (“Domestic Resolution Entities”) to (i) meet the minimum external TLAC requirements and (ii) cause their material subsidiaries that are designated as systemically important by the FSA, including but not limited to certain material sub-groups as provided in the FSB’s TLAC standard, to maintain a certain level of capital and debt recognized by the FSA as having loss-absorbing and recapitalization capacity, or Internal TLAC.In addition, the TLAC Covered SIBs’ Domestic Resolution Entities will be allowed to count the amount equivalent to 2.5% of their consolidated risk-weighted assets from the implementation date of the TLAC requirements in Japan (March 31, 2021 for Nomura) and 3.5% of their consolidated risk-weighted assets from 3 years after the implementation date (March 31, 2024 for Nomura) as our external TLAC, considering the Japanese Deposit Insurance Fund Reserves. It is likely that the FSA’s regulation and notice will be revised further to be in line with a series of rules and standards proposed by the Basel Committee, FSB or International Organization of Securities Commissions. 80 Credit Ratings The cost and availability of unsecured funding are generally dependent on credit ratings. Our long-term and short-term debt is rated by several recognized credit rating agencies. We believe that our credit ratings include the credit ratings agencies’ assessment of the general operating environment, our positions in the markets in which we operate, reputation, earnings structure, trend and volatility of our earnings, risk management framework, liquidity and capital management. An adverse change in any of these factors could result in a downgrade of our credit ratings, and that could, in turn, increase our borrowing costs and limit our access to the capital markets or require us to post additional collateral and permit counterparties to terminate transactions pursuant to certain contractual obligations. In addition, our credit ratings can have a significant impact on certain of our trading revenues, particularly in those businesses where longer term counterparty performance is critical, such as OTC derivative transactions. On September 2, 2021, Fitch Ratings removed the negative watch on the bbb+ viability ratings of the Company and NSC. As of May 20, 2022, the credit ratings of the Company and NSC were as follows.
Both Rating and Investment Information, Inc. and Japan Credit Rating Agency, Ltd. are credit rating agencies nationally recognized in Japan. We rely on, or utilize, credit ratings on our long-term and short-term debt provided by these Japanese credit rating agencies, as well as S&P Global Ratings, Moody’s Investors Service, and Fitch Ratings for unsecured funding and other financing purposes and also for our trading and other business activities. Within the rating classification system of Rating and Investment Information, Inc., “a-1” is the highest of five categories for short-term debt and indicates “a strong degree of certainty regarding debt repayment”; and “A” is the third highest of nine categories for long-term debt and indicates “a high degree of certainty regarding debt repayment with excellence in specific component factors”, with a plus (+) or minus (-) sign added to a rating in that category to indicate its relative standing within that category. Within the rating classification system of Japan Credit Rating Agency, Ltd., “AA” is the second highest of eleven categories for long-term debt and indicates “a very high level of capacity to honor the financial commitment on the obligation”, with a plus (+) or minus (-) sign added to a rating in that category to indicate its relative standing within that category.There has been no change to the ratings in the above table since the date indicated. Off-Balance Sheet Arrangements.Off-balance sheet entitiesIn the normal course of business, we engage in a variety of off-balance sheet arrangements withoff-balance sheet entities which may have an impact on Nomura’s future financial position and performance.81 Off-balance sheet arrangements withoff-balance sheet entities include where Nomura has:an obligation under a guarantee contract; a retained or contingent interest in assets transferred to an off-balance sheet entity or similar arrangement that serves to provide credit, liquidity or market risk support to such entity;any obligation, including a contingent obligation, under a contract that would be accounted for as a derivative instrument; or any obligation, including a contingent obligation, arising out of a variable interest in an off-balance sheet entity that is held by, and material to, us, where such entity provides financing, liquidity, market risk or credit risk support to, or engages in leasing, hedging or research and development services with, us.Off-balance sheet entities may take the form of a corporation, partnership, fund, trust or other legal vehicle which is designed to fulfill a limited, specific purpose by its sponsor. We both create or sponsor these entities and also enter into arrangements with entities created or sponsored by others.Our involvement with these entities includes structuring, underwriting, distributing and selling debt instruments and beneficial interests issued by these entities, subject to prevailing market conditions. In connection with our securitization and equity derivative activities, we also act as a transferor of financial assets to these entities, as well as, underwriter, distributor and seller of asset-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 off-balance sheet arrangements include guarantee agreements and derivative contracts. Significant involvement is assessed based on all of our arrangements with these entities, even if the probability of loss, as assessed at the balance sheet date, is remote.For further information about transactions with VIEs, see Note 6 “ Securitizations and Variable Interest Entities Tabular Disclosure of Contractual Obligations. In the ordinary course of our business, we enter into a variety of contractual obligations and contingent commitments, which may require future payments. These arrangements include: Standby letters of credit and other guarantees: In connection with our banking and financing activities, we enter into various guarantee arrangements with counterparties in the form of standby letters of credit and other guarantees, which generally have fixed expiration dates. Long-term borrowings and contractual interest payments: In connection with our operating activities, we issue Japanese Yen and non-Japanese Yen denominated long-term borrowings which incur variable and fixed interest payments in accordance with our funding policy.Operating lease commitments: We lease office space, residential facilities for employees, motor vehicles, equipment and technology assets in the ordinary course of business both in Japan and overseas as lessee. These arrangements predominantly consist of operating leases. Separately we sublease certain real estate and equipment through operating lease arrangements. 82 Finance lease commitments: We lease certain equipments and facilities in Japan and overseas which are classified as finance lease agreements. Purchase obligations: We have purchase obligations for goods and services which include payments for construction, advertising, and computer and telecommunications maintenance agreements. Commitments to extend credit: In connection with our banking and financing activities, we enter into contractual commitments to extend credit, which generally have fixed expiration dates. In connection with our investment banking activities, we enter into agreements with clients under which we commit to underwrite securities that may be issued by 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. Commitments to invest in partnerships: We have commitments to invest in interests in various partnerships and other entities and commitments to provide financing for investments related to those partnerships. Note 8 “ Leases Borrowings Commitments, contingencies and guarantees The contractual amounts of commitments to extend credit represent the maximum amounts at risk should the contracts be 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 our clients’ creditworthiness and the value of collateral held. We evaluate each client’s creditworthiness on a case-by-case 83 The following table presents information regarding amounts and timing of our future contractual obligations and contingent commitments as of March 31, 2022.
Excluded from the above table are obligations that are generally short-term in nature, including short-term borrowings, deposits received at banks and other payables, collateralized agreements and financing transactions (such as reverse repurchase and repurchase agreements), and trading liabilities. In addition to amounts presented above, we have commitments under reverse repurchase and repurchase agreements including amounts in connection with collateralized agreements and collateralized financing. These commitments amount to ¥1,565 billion for reverse repurchase agreements and ¥2,673 billion for repurchase agreements as of March 31, 2022. C. Research and Development, Patents and Licenses, etc. Not applicable. D. Trend Information. The information required by this item is set forth in Item 5.A of this annual report. E. Critical Accounting Policies and Estimates Critical accounting policies are the accounting policies which have the most significant impact on the preparation of our consolidated financial statements included within this annual report and which require the 84 most difficult, subjective and complex judgments by our management to develop estimates used in the application of these policies. Such estimates determined by management include estimates regarding the fair value of financial instruments and the outcome of litigations that affect the reported amounts of assets and liabilities related footnote as the disclosures in our consolidated financial statements. Estimates, by their nature, are based on underlying assumptions which require management judgment and depend on the extent of available information. Actual results in future reporting periods may differ from current estimates, which could have a material impact on our consolidated financial statements. The following table summarizes the critical accounting policies within our consolidated financial statements which have had the most significant impact on our financial condition and financial performance during the year ended March 31, 2022. For each such critical accounting policy, the following table also identifies the critical accounting estimates inherent within application of those policies, the nature of the estimates, the underlying assumptions made by our management during the year to derive those estimates and the financial impact had we used different estimates or assumptions during the year. See Note 1 “Summary of Accounting Policies”
85
86
87 Item 6. Directors, Senior Management and Employees A. Directors and Senior Management. Directors The following table presents information about our Directors as of June 24, 2022.
88
89
90
91
92
93
94
95
96
Among the Directors listed above Kazuhiko Ishimura, Takahisa Takahara, Noriaki Shimazaki, Mari Sono, Laura Simone Unger, Victor Chu, J.Christopher Giancarlo and Patricia Mosser satisfy the requirements for an “Outside Director” under the Companies Act. 97 Executive Officers The following table presents information about our Executive Officers as of June 24, 2022.
98
99
B. Compensation of Statutory Officers Our compensation program for our statutory officers is outlined as following. 1. Compensation Program of Statutory Officers
2. Compensation Policy and Compensation Scheme (1) Compensation policy We have developed Nomura Group compensation policy for all the employees and statutory officers (“Basic Policy”) and Compensation Policy for Directors and Executive Officers of Nomura Holdings, Inc. (“NHI”) (“Policy for Statutory Officers”) to enable us to achieve sustainable growth, realize a long-term increase in 100 shareholder value, deliver client excellence, compete in a global market and enhance our reputation. The Compensation Committee has been setting those policies with discussion for its appropriateness on every fiscal year. Separately, we have established compensation policy for Nomura Group officers and employees, including senior managing directors of NHI and directors of subsidiaries of NHI but excluding Directors and Executive officers of NHI. This policy is referred to as the “Employee Policy”. < Overview of Nomura’s Compensation Policy Structure >  <a> ”Basic Policy” is as follows: Nomura Group has established compensation policy for Nomura Group officers and employees, including directors and executive officers of NHI. This policy is referred to as the “Basic Policy” and is as follows. Compensation Governance As a company with three Board Committees structure, pursuant to Japanese corporate law, NHI has established an independent statutory Compensation Committee. Majority the Committee members are outside directors. The Committee has established both the Basic Policy and a Compensation Policy for Directors and Executive Officers of NHI, on the basis of which it considers and determines the details of individual compensation for Directors and Executive Officers of NHI. With respect to the relevant policies and total compensation funding for Nomura Group officers and employees other than the Company’s directors and executive officers, certain decisions regarding employment and remuneration matters are delegated to the “Human Resources Committee” (“HRC”) by Executive Management Board of NHI. The HRC is chaired by the Group CEO and at a minimum is composed of the Chief Finance Officer and Chief Risk Management Officer. The HRC considers and determine the above mentioned matters by cooperating with the remuneration committees in each region. Compensation Policies and Practices Nomura Group recognizes that its employees are key in contributing to society in line with its mission of “We help to enrich society through our expertise in capital markets”. Compensation for Nomura Group employees is designed to support achieving sustainable corporate growth, increasing enterprise value over the medium and long-term and maintaining sound and effective risk management, while at the same time positively contributing to the interest of all Nomura shareholders. In addition, in order to ensure that Numara Group attracts, retains, motivates and develops talent, the level and structure of remuneration takes into account the roles and responsibilities of individuals as well as the market pay levels in Japan and overseas, doing so in line with any relevant laws and regulatory expectations. 101 1) Sustainable corporate growth and increasing enterprise value over the medium and long-term Compensation for Nomura Group employees aims to realize Nomura Group corporate philosophy, to promote healthy corporate culture and behaviour in line with Nomura Group “Code of Conduct” and to facilitate a greater alignment with the environmental, social and governance (“ESG”) considerations. Based on the pay-for-performance 2) Sound and effective risk management Nomura Group maintains a sound and effective risk management with an appropriate risk appetite. The Company adjusts the performance measurement standards and indicators when determining compensation by considering both financial and non-financial risks in each business. The qualitative factors such as conduct, compliance, professional ethics and corporate philosophy are considered in determining the final amount of remuneration, which may include a reduction resulting from a disciplinary action.3) Alignment of interests with shareholders For Nomura Group employees who receive a certain amount of remuneration, a portion of the remuneration is stock-related remuneration linked to shares of NHI with an appropriate deferral period applicable, in order to ensure an alignment with the shareholders’ interests. In addition, when granting stock-related compensation, in the event of a material revision of Nomura Group financial statements or a material violation of Nomura Group rules and policies, employees’ compensation may be subject to suspension, reduction, forfeiture of rights, or for some employees even re-payment (so-called “clawback”).Approval and Revision of the Basic Policy The approval, amendment or repeal of the Basic Policy can be made by the Compensation Committee of NHI. <b> ”Policy for Statutory Officers” is as follows: Compensation of Directors and Executive Officers is composed of base salary, cash bonus and long-term incentive plans. 1) Base Salary Base salary is determined based on factors such as professional background, career history, responsibilities and compensation standards of related business fields. With respect to Executive Officers, a portion of base salary may be paid in equity-linked awards with appropriate vesting periods to ensure that medium to long-term interests of Executive Officers are closely aligned with those of shareholders. 2) Annual Bonus Annual bonuses of Directors and Executive Officers are determined by taking into account both quantitative and qualitative factors. Quantitative factors include performance of the Group and the division. Qualitative factors include achievement of individual goals and subjective assessment of individual contribution. 102 In principle, certain portion of annual bonus payment should be deferred. With respect to the Group CEO, given the overall responsibility of business execution of the Nomura Group, the basic amount of the annual bonus is calculated based on the level of achievement in actual value(s) against the target value(s) of key performance indicator(s). In addition, qualitative evaluation should be reflected when determining final annual bonus amount. With respect to Directors and other Executive Officers, amount of annual bonus is determined with the annual bonus of Group CEO as standard baseline, taking into consideration the roles and responsibilities, local remuneration regulations and compensation levels in each jurisdiction etc., in addition to the qualitative evaluation of the individual. Audit Committee members and Outside Directors are not bonus-eligible in order to maintain and ensure their independence from business execution. Mid-term Incentive PlanIn principle, certain portion of annual bonus should be deferred and paid in an equity-linked awards with appropriate vesting periods in lieu of cash to ensure that medium-term interests of Directors and Executive Officers are closely aligned with those of shareholders. Clawback In specific circumstances, unvested bonus may be required to be forfeited. Any voluntary resignation, material modification of Nomura’s financial statements, material breach of Nomura’s internal policies and regulations, amongst others, may render such forfeiture. Additionally, in certain jurisdictions, clawback provisions may apply to already paid and/or vested bonus. 3) Long-term Incentive Plan Long-term incentive plans may be awarded to Directors and Executive Officers, depending on their individual responsibilities, performance etc. Payments under long-term incentive plans are made when a certain degree of achievements are accomplished. Payments are made in equity-linked awards with appropriate vesting periods to ensure that long-term interests of Directors and Executive Officers are closely aligned with those of shareholders. <c> ”Employee Policy” is as follows: Based on the “Basic Policy”, Nomura Group has established compensation policy for Nomura Group officers and employees, including senior managing directors of NHI and directors of subsidiaries of NHI but excluding directors and executive officers of NHI. This policy is referred to as the “Employee Policy” and is as follows. Matters not provided for in the Employee Policy shall be governed by the provisions of the Basic Policy. Compensation Governance Supervised by NHI Human Resources Committee (“HRC”), the regional committees governing employee compensation are composed of representatives of Finance, Risk Management, Compliance, Human Resources, and other departments as appropriate. These committees implement Nomura Group global compensation governance rules. The proposed compensation of Control Function staff (Risk Management, Compliance, Internal Audit) shall not be determined by the front office business and the performance evaluation of such staff shall not be determined solely by the financial performance of the business for which such staff are responsible. 103 Compensation Policies and Practices Nomura Group recognizes that its employees are key in contributing to society in line with its mission of “We help to enrich society through our expertise in capital markets”. Compensation for Nomura Group employees is designed to support achieving sustainable corporate growth, increasing enterprise value over the medium and long-term and maintaining sound and effective risk management, while at the same time positively contributing to the interest of all NHI shareholders. In addition, in order to ensure that Nomura Group attracts, retains, motivates and develops talent, the level and structure of remuneration takes into account the roles and responsibilities of individuals as well as the market pay levels in Japan and overseas, doing so in line with any relevant laws and regulatory expectations. 1) Sustainable corporate growth and increasing enterprise value over the medium and long-term Compensation for Nomura Group employees aims to realize Nomura Group corporate philosophy which underpins its Mission of Contributing to Society and its Vision of being a Trusted Partner, being based on the Values of Entrepreneurial Leadership, Teamwork and Integrity, to promote healthy, diverse corporate culture and the right behaviour in line with Nomura Group “Code of Conduct” and to facilitate a greater alignment with the environmental, social and governance (“ESG”) considerations. Based on the pay-for-performance Compensation at Nomura reflects and aligns with the performance of Nomura Group as a whole, its divisions, as well as individual employees, taking into account both the business strategy and market considerations. 2) Sound and effective risk management Nomura Group maintains a sound and effective risk management with an appropriate risk appetite. It adjusts the performance measurement standards and indicators when determining compensation by considering both financial and non-financial risks in each business, taking a holistic approach. The qualitative factors such as conduct, compliance, professional ethics and corporate philosophy are considered in determining the final amount of remuneration, which may include a reduction resulting from a disciplinary action. Risk Management, Compliance and Finance divisions provide key inputs into the overall risk and performance assessment to ensure appropriate consideration of these factors.The compensation package offered to Nomura Group employees comprises two key elements: Fixed compensation—reflects the role, responsibilities and experience of the employee; and Variable compensation—intends to incentivise performance, promote the right behaviours, drive employee growth and development. For higher paid employees, a portion of the variable compensation may be deferred, balancing short-term with medium and long-term interests of Nomura Group. Nomura Group seeks to balance the components of compensation between fixed and variable according to the employee’ role and seniority. In principle, the percentage of deferral increases as an employee’s compensation increases. Guaranteed compensation is allowed only in limited circumstances such as new hire or, where allowed, strategic business needs. Multi-year guarantees are typically prohibited. 3) Alignment of interests with shareholders Deferred variable compensation is intended to align the interests of employees and NHI shareholders, and to encourage a long-term, sustainable approach to the management of the Company by senior management and 104 more highly paid employees. For Nomura Group employees who receive a certain amount of remuneration, a portion of the remuneration is stock-related remuneration linked to shares of NHI with an appropriate deferral period applicable, in order to ensure an alignment with the shareholders’ interests. In addition, when granting stock-related compensation, in the event of a material revision of Nomura Group financial statements or a material violation of Nomura Group rules and policies, employees’ compensation may be subject to suspension, reduction, forfeiture of rights, or for some employees located in specific jurisdictions/regions even re-payment (so-called “clawback”).Approval and Revision of the Employee Policy The approval, amendment or repeal of the Employee Policy can be made by the HRC. (2) Scheme and details of Compensation for Directors and Executive Officers 1) Scheme of Compensation and Directors and Executive Officers and calculation method.  The result of TC for the President and the Group CEO regarding the fiscal year ended as of March 31, 2022 is as follows.
105 The percentage of Base Salary (Fixed Compensation) and Annual Bonus (Variable Compensation) in TC is approximately 35% : 65%. Also, Base Salary (Fixed Compensation) includes equity-linked compensation, which is delivered by Nomura’ shares after the relevant fiscal year, same as deferred compensation. To be in line with overall responsibility of business execution of the Nomura Group, approximately 40% (equity-linked compensation, which is a part of Base Salary (Fixed Compensation), and deferred compensation) of TC are paid as equity-linked compensation, which leads to the alignment of interest with shareholders and appropriate medium-term incentives. 2) Calculation method of the Annual Bonus <Outline of calculation method> In calculating the Annual Bonus for the Directors and the Executive Officers, a different calculation method is applied depending on the position. <Specific calculation method by position> With respect to the President and the Group CEO, given the overall responsibility of business execution of the Nomura Group, the basic amount of the Annual Bonus is calculated based on the level of achievement in actual value against the target value regarding ROE. In addition, Total Compensation (hereafter “TC”) , including the Base Salary and the Annual Bonus, is determined by considering, as needed, qualitative evaluation etc. by the Compensation Committee. With respect to the Directors and Executive Officers other than the Group CEO, their Annual Bonus and TC are determined based on the ones of the Group CEO, reflecting individual roles and responsibilities, respective jurisdiction’s regulations and compensation level etc. in addition to other qualitative elements. With respect to the Director of the audit committee member and Outside Directors are out of scope of the Annual Bonus in order to keep independency from business execution. <Actual value regarding the performance indicator used for the calculation of the Annual Bonus >
(1) Deferred Compensation (equity-linked compensation) The Company sets half of the amount of the Annual Bonus of the Directors and Executive Officers. In principle, equity-linked compensation (Restricted Stock Unit (“RSU”), Notional Stock Unit (“NSU”) ) that falls under the Non-Monetary Compensation is used for payment of the amount.106 (2) Outline of current Deferred Compensation Awards. The outline of current Deferred Compensation Awards is as follows.
As stated above, RSU awards have been introduced as a principle vehicle from the fiscal year ended as of March 31, 2018 and replaced with stock acquisition rights and other awards. (3) Effect of payment of deferred compensation as equity-related compensation By providing deferred compensation as equity-linked compensation, the economic value of the compensation is linked to the stock price of Nomura, and a certain vesting period is set. Alignment of interests with shareholders. Medium-term incentives (*) and retention by providing an opportunity for the economic value of Deferred Compensation at the time of grant to be increased by a rise in shares during a period of time from grant to vesting.
Promotion of cross-divisional collaboration and cooperation by providing a common goal of increasing corporate value over the medium to long term. As a result of these benefits, deferred compensation awards are also recommended by regulators in the key jurisdictions in which we operate. The deferral period over which our deferred compensation awards vest is generally three or more years. This is in line with the “Principles for Sound Compensation Practices” issued by the Financial Stability Board which recommends, among other things, a deferral period of three or more years. 107 (4) Clawback prescribed in Deferred Compensation Any voluntary resignation, material modification of the financial statements, material breach of Nomura’s internal policies and regulations etc. are subject to forfeiture, reduction or clawback (Conclusion of individual contracts including “clawback clause”). 3. Compensation for Directors and Executive Officers Pursuant to the fundamental approach and framework of compensation as described above, and as a company which adopts a committee-based corporate governance system, a Compensation Committee of Nomura determines compensation of its Directors and Executive Officers in accordance with our applicable compensation policies. 3-1. Aggregate compensation 1) Aggregate Compensation for Directors and Officers Millions of yen
108 2) Individual compensation of Directors and Executive Officers receiving ¥100 million or more
The following table presents a summary of the meetings held by our Compensation Committee during the year ended March 31, 2022, a summary of key matters discussed and also whether all members of the Committee attended the meeting.
109
Through discussion and resolution of the above topics, our Compensation Committee confirmed that compensation for our Directors and Executive Officers in respect of the year ended March 31, 2022 are appropriate and consistent with our relevant compensation policies. Outlines of the above meetings have been reported to our Board of Directors. Stock Acquisition Rights (“SARs”) The following table presents information regarding unexercised Stock Acquisition Rights as of March 31,
110
SARs Held by Directors and Executive Officers of Nomura The following table presents details of Stock Acquisition Rights held by Directors and Executive Officers as of March 31,
Pension, Retirement or Similar Benefits See Note 13 “ Employee benefit plans 111 C. Board Practices. Information Concerning Directors The Companies Act states that a Company with Three Board Committees (as defined below) must establish three committees; a nomination committee, an audit committee and a compensation committee. The members of each committee are chosen from the company’s directors, and the majority of the members of each committee must be outside directors. At a Company with Three Board Committees, the board of directors is entitled to establish the basic management policy for the company, has decision-making authority over certain prescribed matters, and supervises the execution by the executive officers of their duties. Executive officers and representative executive officers appointed by a resolution adopted by the board of directors manage the business affairs of the company, based on a delegation of authority by the board of directors. Board of Directors The Company’s Board of Directors consists of Directors who are elected at a general meeting of shareholders and the Company’s Articles of Incorporation provide that the number of Directors shall not exceed twenty. The term of office of each Director expires upon the conclusion of the ordinary general meeting of shareholders with respect to the last fiscal year ending within one year after their appointment. Directors may serve any number of consecutive terms. From among its members, the Company’s Board of Directors elects the Chairman. The Company’s Board of Directors met Nomination Committee The Nomination Committee, in accordance with the Company’s Regulations of the Nomination Committee, determines the details of any proposals concerning the election and dismissal of Directors to be submitted to general meetings of shareholders by the Board of Directors. The Nomination Committee met Audit Committee The Audit Committee, in accordance with the Company’s Regulations of the Audit Committee, (i) audits the execution by the Directors and the Executive Officers of their duties and the preparation of audit reports and (ii) determines the details of proposals concerning the election, dismissal or non-reappointment of the accounting auditor to be submitted to general meetings of shareholders by the Board of Directors. With respect to financial112 reporting, the Audit Committee has the statutory duty to examine financial statements and business reports to be prepared by Executive Officers designated by the Board of Directors and is authorized to report its opinion to the ordinary general meeting of shareholders. The Audit Committee met Compensation Committee The Compensation Committee, in accordance with the Company’s Regulations of the Compensation Committee, determines the Company’s policy with respect to the determination of the details of each Director and Executive Officer’s compensation. The Compensation Committee also determines the details of each Director and Executive Officer’s actual compensation. The Compensation Committee met Board Risk Committee The Board Risk Committee is a non-statutory organ, in accordance with the Company’s Regulations of the Board Risk Committee, of which purpose is to assist the Board of Directors in supervising Nomura Group’s risk management and to contribute to sophistication of the risk management. At meetings of the Board Risk Committee, to further strengthen the risk management of Nomura Group, consent to the Risk Appetite Statement and the main design of the risk management framework, analysis of risk environment/verification results and future projections, supervision of overall execution of risk management and medium- to long-term risk strategies are mainly deliberated. The status of execution of the function in the Board Risk Committee is reported to the Board of Directors. The Board Risk Committee met four times during the fiscal year ended March 31, 2022. As a group, the member Directors attended all of the meetings of the Board Risk Committee during the year. As of June 20, 2022, the members of the Board Risk Committee are Outside Directors Laura Simone Unger, Noriaki Shimazaki, Victor Chu, J. Christopher Giancarlo and Patricia Mosser, and Shoji Ogawa, a Director not concurrently serving as an Executive Officer. Laura Simone Unger is the Chairperson of this Committee.Limitation of Director Liability In accordance with Article 33, Paragraph 2 of the Company’s Articles of Incorporation and Article 426, Paragraph 1 of the Companies Act, the Company may execute agreements with Directors (excluding a person who serves as an executive director, etc.) that limit their liability to the Company for damages suffered by the Company if they acted in good faith and without gross negligence. Accordingly, the Company has entered into agreements to limit Companies Act Article 423 Paragraph 1 liability for damages (“Limitation of Liability Agreements”) with each of the following Directors: Directors and Officers Liability Insurance Contracts The Company has entered into directors and officers liability insurance contracts set forth in Article 430-3, Paragraph 1 of the Companies Act with insurance companies, which have persons such as directors, executive officers, senior managing directors, auditors, and senior employees of the Company and its subsidiaries as113 insured persons. Under such insurance contracts, there will be an indemnification of losses, such as compensation for damages and litigation costs, incurred by an insured person due to a claim for loss or damage caused by an act (including an omission) carried out on the basis of the position, such as director or officer, held by the insured at the Company, and all insurance premiums of insureds have been entirely borne by the Company. However, there are certain exclusions applicable to such insurance contracts such as losses caused by a deliberately fraudulent or dishonest act of individuals such as directors/officers. Information Concerning Executive Officers Executive Officers of the Company are appointed by the Board of Directors, and the Company’s Articles of Incorporation provide that the number of Executive Officers shall not exceed forty-five. The term of office of each Executive Officer expires upon the conclusion of the first meeting of the Board of Directors convened after the ordinary general meeting of shareholders for the last fiscal year ending within one year after each Executive Officer’s assumption of office. Executive Officers may serve any number of consecutive terms. Executive Officers have the authority to determine matters delegated to them by resolutions adopted by the Board of Directors and to execute business activities. D. Employees. The following table shows the number of our employees as of the dates indicated:
As of March 31, As of March 31, We have not experienced any strikes or other labor disputes in Japan or overseas and consider our employee relations to be excellent. 114 E. Share Ownership. The following table shows the number of shares owned by our Directors and Executive Officers as of May 31, Directors
Executive Officers
For information regarding stock options granted to our Directors and Executive Officers, see Item 6.B “ Compensation Item 7. Major Shareholders and Related Party Transactions A. Major Shareholders. According to a statement on Schedule 13G (Amendment According to a statement on Schedule 13G (Amendment No.2) filed by Sumitomo Mitsui Trust Holdings, Inc. with the SEC on February 115 To our knowledge, we are not directly or indirectly owned or controlled by another corporation, by any government or by any other natural or legal person severally or jointly. We know of no arrangements the operation of which may at a later time result in a change of control of Nomura. Also as of March 31, 373,610,477 shares of the Company’s common stock, representing B. Related Party Transactions. Nomura Research Institute, Ltd. NRI develops and manages computer systems and provides research services and management consulting services. We are one of the major clients of NRI. We held For the year ended March 31, Nomura has sold 14,105,000 ordinary shares it held at ¥50,002 million to NRI in response to its own share repurchase through off-floor trading (ToSTNeT-3) on June 22, 2021. As a result of the transaction, a gain of ¥36,249 million was recognized in earnings withinRevenue—Other See also Note Affiliated companies and other equity-method investees Directors C. Interests of Experts and Counsel. Not applicable. Item 8. Financial Information A. Consolidated Statements and Other Financial Information. Financial Statements The information required by this item is set forth in our consolidated financial statements included elsewhere in this annual report. Legal Proceedings For a discussion of our litigation and related matters, see Note Commitments, contingencies and guarantees Dividend Policy For our dividend policy, see Item 5.B “Liquidity and Capital — Capital — Dividends” in 116 B. Significant Changes. Except as disclosed in this annual report, there have been no significant changes since March 31, Item 9. The Offer and Listing A. Offer and Listing Details. See Item The Offer and Listing— B. Plan of Distribution. Not applicable. C. Markets. The principal trading market for the Company’s common stock is the Tokyo Stock Exchange. The Company’s common stock has been listed on the Tokyo Stock Exchange and the Nagoya Stock Exchange since 1961. The trading symbol on those trading markets is Since December 2001, the Company’s common stock has been listed on the New York Stock Exchange in the form of ADSs evidenced by ADRs. Each ADS represents one share of common stock. The trading symbol is D. Selling Shareholders. Not applicable. E. Dilution. Not applicable. F. Expenses of the Issue. Not applicable. Item 10. Additional Information A. Share Capital. Not applicable. B. Memorandum and Articles of Association. Register, Objects and Purposes in the Company’s Articles of Incorporation Nomura Holdings, Inc. is incorporated in Japan and is registered in the Commercial Register ( Shogyo Tokibo Article 2 of the Company’s Articles of Incorporation, which is an exhibit to this annual report, states that the Company’s purpose is, by means of holding shares, to control and manage the business activities of domestic companies which engage in the following businesses and the business activities of foreign companies which engage in the businesses equivalent to the following businesses:
117
Provisions Regarding the Company’s Directors Although there is no provision in the Company’s Articles of Incorporation as to a Director’s power to vote on a proposal or arrangement in which the Director is materially interested, under the Companies Act and the Company’s Regulations of the Board of Directors, a Director must abstain from voting on such matters at meetings of the Board of Directors. As a Company with Three Board Committees, the compensation of the Company’s Directors and Executive Officers is determined by the Compensation Committee (see Item 6.C. “Board Practices-Information Concerning Directors-Compensation Committee” With respect to borrowing powers, these as well as other powers relating to the management of the business (with the exception of certain exclusions specified under the Companies Act) have been delegated to the Executive Officers by the Board of Directors as a Company with Three Board Committees. There is no mandatory retirement age for the Company’s Directors under the Companies Act or the Company’s Articles of Incorporation. There is no requirement concerning the number of shares an individual must hold in order to qualify him or her to serve as a Director of the Company under the Companies Act or the Company’s Articles of Incorporation. Pursuant to the Companies Act and the Company’s Articles of Incorporation, the Company may, by a resolution adopted by the Company’s Board of Directors, release the liabilities of any Directors or Executive Officers to the Company for damages suffered by the Company due to their acts taken in good faith and without gross negligence, to the extent permitted by the Companies Act and the Company’s Articles of Incorporation. In addition, the Company may execute with Directors (excluding a person who serves as an executive director, etc.) agreements that limit their liabilities to the Company for damages suffered by the Company if they acted in good faith and without gross negligence, to the extent permitted by the Companies Act and the Company’s Articles of Incorporation. See Item 6.C. “Board Practices-Limitation of Director Liability” Other Matters For disclosures under the following items, see “Description of rights of each class of securities registered under Section 12 of the Securities Exchange Act of 1934” C. Material Contracts. 118 D. Exchange Controls. Acquisition of Shares The following summary is not intended to be a complete analysis of the prior notification or reporting requirements under Japanese foreign exchange regulations as a result of the acquisition by investors of shares of the Company. Potential investors should consult their own legal advisors on the consequences of the acquisition of shares of the Company, including specifically the applicable notification, reporting and other procedures and any available exemption therefrom under Japanese foreign exchange regulations. The Foreign Exchange and Foreign Trade Law of Japan and its related cabinet orders and ministerial ordinances (“Foreign Exchange Regulations”) governs certain aspects relating to the acquisition and holding of shares of the Company by “foreign investors,” as defined below. If a foreign investor acquires shares of the Company and as a result of this acquisition directly or indirectly holds 1% or more of the issued shares of the Company, together with its existing holdings and those of other parties who have a close relationship with that foreign investor (the “closely-related person”), the foreign investor is, in general, required to report the acquisition to the Minister of Finance and any other competent ministers via the Bank of Japan within 45 days from the date of acquisition. If (i) the foreign investor or its closely-related person will not become a board member of the Company, (ii) the foreign investor will not propose, at a general shareholders meeting of the Company, a transfer or disposition of its business, and (iii) the foreign investor will not have access to any non-public information regarding the Company’s technologies in relation to its business, in general, a prior notification is exempted.“Foreign investors” are generally defined as (i) individuals who are not residents in Japan, (ii) corporations which are organized under the laws of foreign countries or whose principal offices are located outside Japan, (iii) corporations of which (a) 50% or more of the voting rights are held directly or indirectly by (i) and/or (ii) above, (b) a majority of officers consists of non-residents of Japan or (c) a majority of officers having the power of representation consists ofnon-residents of Japan, and (iv) partnerships or limited partnerships engaging in investment business, in which (a) 50% or more of the total amount of contributions are made directly or indirectly by (i) and/or (ii) above or (b) a majority of the managing partners are (i) and/or (ii) above.Dividends and Proceeds of Sale Under the Foreign Exchange Regulations, dividends paid on, and the proceeds of sales in Japan of, shares held by non-residents of Japan may in general be converted into any foreign currency and repatriated abroad. Under the terms of the deposit agreement pursuant to which ADSs of the Company will be issued, the depositary is required, to the extent that in its judgment it can convert yen on a reasonable basis into dollars and transfer the resulting dollars to the U.S., to convert all cash dividends that it receives in respect of deposited shares into dollars and to distribute the amount received (after deduction of applicable withholding taxes) to the holders of ADSs.“Non-residents of Japan” are generally defined as individuals who are not resident in Japan and corporations whose principal offices are located outside Japan. Branches and other offices of Japanese corporations located outside Japan are considerednon-residents of Japan, and branches and other offices located within Japan ofnon-resident corporations are considered residents of Japan.E. Taxation. U.S. Federal Income Taxation This section describes the material U.S. federal income tax consequences of owning shares or ADSs. It applies to you only if you are a U.S. holder (as defined below), you acquire your shares or ADSs in an offering 119 and you hold your shares or ADSs as capital assets for tax purposes. This section does not apply to you if you are a member of a special class of holders subject to special rules, including: a dealer in securities, a trader in securities that elects to use a mark-to-market a tax-exempt organization,a life insurance company, a person liable for alternative minimum tax, a person that actually or constructively owns 10% or more of the combined voting power of our voting stock or of the total value of our stock, a person that holds shares or ADSs as part of a straddle or a hedging, conversion, integrated or constructive sale transaction, a person that purchases or sells shares or ADSs as part of a wash sale for tax purposes, or a person whose functional currency is not the U.S. dollar. This section is based on the Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations, published rulings and court decisions, all as currently in effect, as well as on the Income Tax Convention Between the U.S. and Japan (“Japan-U.S. Tax Treaty”). These laws are subject to change, possibly on a retroactive basis. In addition, this section is based in part upon the representations of The Bank of New York Mellon (“depositary”) and the assumption that each obligation in the deposit agreement and any related agreement will be performed in accordance with its terms.If a partnership holds the shares or ADSs, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and the tax treatment of the partnership. A partner in a partnership holding the shares or ADSs should consult its tax advisor with regard to the U.S. federal income tax treatment of an investment in the shares or ADSs. You are a U.S. holder if you are a beneficial owner of shares or ADSs and you are: a citizen or resident of the U.S., a corporation created or organized in or under the laws of the U.S. or any political subdivision thereof, an estate whose income is subject to U.S. federal income tax regardless of its source, or a trust if a U.S. court can exercise primary supervision over the trust’s administration and one or more U.S. persons are authorized to control all substantial decisions of the trust. You should consult your own tax advisor regarding the U.S. federal, state, local and other tax consequences of owning and disposing of shares and ADSs in your particular circumstances. This discussion addresses only U.S. federal income taxation. In general, and taking into account the earlier assumptions, for U.S. federal income tax purposes, if you hold ADRs evidencing ADSs, you will be treated as the owner of the shares represented by those ADSs. Exchanges of shares for ADRs, and ADRs for shares, generally will not be subject to U.S. federal income tax. Taxation of Dividends Under the U.S. federal income tax laws, and subject to the passive foreign investment company (“PFIC”) rules discussed below, the gross amount of any dividend we pay out of our current or accumulated earnings and 120 profits (as determined for U.S. federal income tax purposes) is subject to U.S. federal income taxation. If you are a non-corporate U.S. holder, dividends that constitute qualified dividend income will be taxable to you at the preferential rates applicable to long-term capital gains provided that you hold the shares or ADSs for more than 60 days during the121-day period beginning 60 days before theex-dividend date and meet other holding period requirements. Dividends we pay with respect to the shares or ADSs generally will be qualified dividend income.You must include any Japanese tax withheld from the dividend payment in this gross amount even though you do not in fact receive it. The dividend is taxable when you, in the case of shares, or the depositary, in the case of ADSs, receive the dividend, actually or constructively. The dividend will not be eligible for the “dividends-received deduction” generally allowed to U.S. corporations in respect of dividends received from other U.S. corporations. The amount of the dividend distribution that you must include in your income as a U.S. holder will be the U.S. dollar value of the Japanese yen payments made, determined at the spot Japanese yen/U.S. dollar rate on the date the dividend non-taxable return of capital to the extent of your basis in the shares or ADSs and thereafter as capital gain. However, we do not expect to calculate earnings and profits in accordance with United States federal income tax principles. Accordingly, you should expect generally to treat distributions we make as dividends.Subject to certain limitations, the Japanese tax withheld in accordance with the Japan-U.S. Tax Treaty and paid over to Japan will be creditable against your U.S. federal income tax liability. However, under recently issued United States Treasury regulations, it is possible that such withholding tax will not be creditable unless you are eligible to claim the benefits of the Japan-U.S. Tax Treaty and elect to apply the Japan-U.S. Tax Treaty. Special rules apply in determining the foreign tax credit limitation with respect to dividends that are subject to the preferential tax rates. To the extent a refund of the tax withheld is available under Japanese law or theJapan-U.S. Tax Treaty, the amount of tax withheld that is refundable will not be eligible for credit against your U.S. federal income tax liability.For foreign tax credit purposes, dividends will generally be income from sources outside the U.S. and will generally be “passive income” for purposes of computing the foreign tax credit allowable to you. Taxation of Capital Gains Subject to the PFIC rules discussed below, if you are a U.S. holder and you sell or otherwise dispose of your shares or ADSs, you will recognize capital gain or loss for U.S. federal income tax purposes equal to the difference between the U.S. dollar value of the amount that you realize and your tax basis, determined in U.S. dollars, in your shares or ADSs. Capital gain of a non-corporate U.S. holder is generally taxed at preferential rates where the property is held for more than one year. The gain or loss will generally be income or loss from sources within the U.S. for foreign tax credit limitation purposes.PFIC Rules We do not expect our shares and ADSs to be treated as stock of a PFIC for U.S. federal income tax purposes, but this conclusion is a factual determination that is made annually and thus may be subject to change. Moreover, the application of the PFIC rules to a corporation, such as Nomura, that is primarily engaged in an active business as a securities dealer is not entirely clear. 121 In general, if you are a U.S. holder, we will be a PFIC with respect to you if for any taxable year in which you held our ADSs or shares: at least 75% of our gross income for the taxable year is passive income, or at least 50% of the value, determined on the basis of a quarterly average, of our assets is attributable to assets that produce or are held for the production of passive income. Passive income generally includes dividends, interest, royalties, rents (other than certain rents and royalties derived in the active conduct of a trade or business), annuities and gains from assets that produce passive income. If a foreign corporation owns at least 25% by value of the stock of another corporation, the foreign corporation is treated for purposes of the PFIC tests as owning its proportionate share of the assets of the other corporation, and as receiving directly its proportionate share of the other corporation’s income. If we are treated as a PFIC, and you are a U.S. holder that did not make a mark-to-market any gain you realize on the sale or other disposition of your shares or ADSs, and any excess distribution that we make to you (generally, any distributions to you during a single taxable year that are greater than 125% of the average annual distributions received by you in respect of the shares or ADSs during the three preceding taxable years or, if shorter, your holding period for the shares or ADSs). Under these rules: the gain or excess distribution will be allocated ratably over your holding period for the shares or ADSs, the amount allocated to the taxable year in which you realized the gain or excess distribution, or to prior years before the first year in which we were a PFIC with respect to you, will be taxed as ordinary income, the amount allocated to each other previous year will be taxed at the highest tax rate in effect for that year, and the interest charge generally applicable to underpayments of tax will be imposed in respect of the tax attributable to each such year. Special rules apply for calculating the amount of the foreign tax credit with respect to excess distributions by a PFIC. If you own shares or ADSs in a PFIC that are regularly traded on a qualified exchange, they will be treated as marketable stock, and you may elect to mark your shares or ADSs to market. If you make this election, you will not be subject to the PFIC rules described above. Instead, in general, you will include as ordinary income each year the excess, if any, of the fair market value of your shares or ADSs at the end of the taxable year over your adjusted basis in your shares or ADSs. These amounts of ordinary income will not be eligible for the favorable tax rates applicable to qualified dividend income or long-term capital gains. You will also be allowed to take an ordinary loss in respect of the excess, if any, of the adjusted basis of your shares or ADSs over their fair market value at the end of the taxable year (but only to the extent of the net amount of previously included income as a result of the mark-to-market Your shares or ADSs will be treated as stock in a PFIC if we were a PFIC at any time during your holding period in your shares or ADSs, even if we are not currently a PFIC. For purposes of this rule, if you make a mark-to-market mark-to-market 122 In addition, notwithstanding any election you make with regard to the shares or ADSs, dividends that you receive from us will not constitute qualified dividend income to you if we are a PFIC (or treated as a PFIC with respect to you) either in the taxable year of the distribution or the preceding taxable year. Dividends that you receive that do not constitute qualified dividend income are not eligible for taxation at the preferential rates applicable to qualified dividend income. Instead, you must include the gross amount of any such dividend paid by us out of our accumulated earnings and profits (as determined for U.S. federal income tax purposes) in your gross income, and it will be subject to tax at rates applicable to ordinary income. If you own shares or ADSs during any year that we are a PFIC with respect to you, you may be required to file Internal Revenue Service Form 8621. Japanese Taxation The following is a summary of the principal Japanese tax consequences to owners of shares of the Company who are non-resident individuals ornon-Japanese corporations(“non-resident shareholders”) without a permanent establishment in Japan to which the relevant income is attributable. As tax laws are frequently revised, the tax treatments described in this summary are also subject to changes in the applicable Japanese laws and/or double taxation conventions occurring in the future, if any. This summary is not exhaustive of all possible tax considerations which may apply to specific investors under particular circumstances. Potential investors should, by consulting with their own tax advisers, satisfy themselves as tothe overall tax consequences of the acquisition, ownership and disposition of shares or ADSs, including specifically the tax consequences under Japanese law, the laws of the jurisdiction of which they are resident, and any tax treaty between Japan and their country of residence. Generally, a non-resident shareholder is subject to Japanese withholding tax on dividends on the shares paid by the Company. A stock split is not subject to Japanese income or corporation tax, as it is characterized merely as an increase of number of shares (as opposed to an increase of value of shares) from Japanese tax perspectives. Conversion of retained earnings or legal reserve (but other than additionalpaid-in capital, in general) into stated capital on anon-consolidated basis is not characterized as a deemed dividend for Japanese tax purposes, and therefore such a conversion does not trigger Japanese withholding taxation (Article 2(16) of the Japanese Corporation Tax Law and Article 8(1)(xiii) of the Japanese Corporation Tax Law Enforcement Order).Unless an applicable tax treaty, convention or agreement reducing the maximum rate of withholding tax applies, the rate of Japanese withholding tax applicable to dividends on listed shares such as those paid by the Company to non-resident shareholders is currently 15%, except for dividends paid to any individual shareholder who holds 3% or more of the issued shares for which the applicable rate is 20% (please refer to Article 170 and Article 213(1)(i) of the Japanese Income Tax Law and Article9-3(1)(i) of the Japanese Special Tax Measures Law).On December 2, 2011, the “Special measures act to secure the financial resources required to implement policy on restoration after the East Japan Earthquake” (Act No. 117 of 2011) was promulgated and special surtax measures on income tax were introduced to fund the restoration effort from the earthquake. Income tax and withholding tax payers will need to pay a surtax, calculated by multiplying the base income tax with 2.1% for 25 years starting from January 1, 2013. As a result of the fractional tax rate increase, 15.315% is applicable until December 31, 2037. If a non-resident taxpayer is a resident of a country that Japan has tax treaty with, as described below, suchnon-residents will not be subject to the surtax to the extent that the applicable rate agreed in the tax treaty is lower than the aggregate domestic rate.Japan has income tax treaties, conventions or agreements whereby the above-mentioned withholding tax rate is reduced, generally to 15% for portfolio investors, with, among others, Canada, Denmark, Finland, 123 Germany, Ireland, Italy, Luxembourg, New Zealand, Norway, Japan-U.S. Tax Treaty, the withholding tax rate on dividends is 10% for portfolio investors, provided that they do not have a permanent establishment in Japan, or if there is a permanent establishment, the shares with respect to which such dividends are paid are not effectively connected with such permanent establishment, and that they are qualified U.S. residents eligible to enjoy treaty benefits. It shall be noted that, under theJapan-U.S. Tax Treaty, withholding tax on dividends to be paid is exempt from Japanese taxation by way of withholding or otherwise for pension funds which are qualified U.S. residents eligible to enjoy treaty benefits unless such dividends are derived from the carrying on of a business, directly or indirectly, by such pension funds (please refer to Article 10(3)(b) of theJapan-U.S. Tax Treaty). In addition to theJapan-U.S. Tax Treaty, Japan currently has income tax treaties with, among others, the U.K., France, Australia, the Netherlands, Switzerland, Sweden and Belgium whereby the withholding tax rate on dividends is also reduced from 15% to 10% for portfolio investors.Non-resident shareholders who are entitled to a reduced treaty rate of Japanese withholding tax on payment of dividends on the shares by the Company are required to submit the “Application Form for Income Tax Convention regarding Relief from Japanese Income Tax and Special Income Tax for Reconstruction on Dividends” or the “Application Form for Income Tax Convention regarding Relief from Japanese Income Tax and Special Income Tax for Reconstruction on Dividends with respect to Foreign Depositary Receipt”, as the case may be, in advance through the Company, which is the case for ADS holders, or (in cases where the relevant withholding taxpayer for the dividend payment is not the Company but a financial institution in Japan) through the financial institution, to the relevant tax authority before payment of dividends.Non-resident shareholders who receive dividends through a financial institution may select a simplified procedure with respect to dividends payable on or after January 1, 2014. Under such procedure,non-resident shareholders who submit the “Special Application Form for Income Tax Convention regarding Relief from Japanese Income Tax and Special Income Tax for Reconstruction on Dividends of Listed Stocks” to the relevant tax authority through a financial institution are deemed to have submitted the “Application Form for Income Tax Convention regarding Relief from Japanese Income Tax and Special Income Tax for Reconstruction on Dividends” mentioned above with respect to any dividend which will be paid by the Company tonon-resident shareholders through the financial institution thereafter, provided that suchnon-resident shareholders shall notify the financial institution of certain information regarding the dividends before the payment of such dividends.Non-resident shareholders who do not submit an application in advance will be entitled to claim the refund of withholding taxes withheld in excess of the rate of an applicable tax treaty from the relevant Japanese tax authority. For Japanese tax purpose, the treaty rate normally applies superseding the tax rate under the domestic law. However, due to theso-called “preservation doctrine” under Article3-2 of the Special Measures Law for the Income Tax Law, Corporation Tax Law and Local Taxes Law with respect to the Implementation of Tax Treaties, if the tax rate under the domestic tax law is lower than that promulgated under the applicable income tax treaty, then the domestic tax rate is still applicable. Consequently, if the domestic tax rate still applies, no treaty application is required to be filed.Gains derived from the sale of shares outside Japan by a non-resident shareholder without a permanent establishment in Japan as a portfolio investor, are, in general, not subject to Japanese income or corporation taxes.Japanese inheritance and gift taxes at progressive rates may be payable by an individual who has acquired shares as a legatee, heir or donee, even if the individual is not a Japanese resident. You should consult your own tax advisers regarding the Japanese tax consequences of the acquisition, ownership and disposition of the shares and ADSs in your particular circumstances. F. Dividends and Paying Agents. Not applicable. G. Statement by Experts. Not applicable. 124 H. Documents on Display. The Company is subject to the informational requirements of the Securities Exchange Act of 1934 and, in accordance therewith, the Company will file with the Securities and Exchange Commission annual reports on Form 20-F within four months of the Company’s fiscalyear-end and other reports and information on Form6-K. You can access the documents filed via the Electronic Data Gathering, Analysis, and Retrieval system on the SEC’s website (http://www.sec.gov). I. Subsidiary Information. Not applicable. Item 11. Quantitative and Qualitative Disclosures about Market, Credit and Other Risk 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 financial resources, the management of all risk classes, and processes to measure and control risks. Furthermore, in response to the U.S. Prime Brokerage Event, we are in the process of reviewing our risk management framework for considering improvements thereto. Each of these key components is explained in further detail As a part of the efforts to enhance the risk management governance, the Board Risk Committee (the “BRC”) was formally established on October 29, 2021 to discuss important risks independently of the execution side within the high-level governance structure. The BRC assists the Board of Directors (the “BoD”) in supervising such matters as (i) providing consent to Risk Appetite Statement, (ii) providing consent to the main design of the risk management framework, (iii) results of analysis and verification or future forecasts of risk environment, and (iv) supervision over execution state of the overall risk management and medium- to long-term risk strategies for contributing to the sophistication of the Group’s risk management. Besides, the Group Integrated Risk Management Committee (the “GIRMC”) was formally changed its name to the Group Risk Management Committee (the “GRMC”), further ensuring global representatives and efficiency in the operations, with an intention to increase the senior management’s involvement in risk management, stimulate dialog and analysis further, and effectively coordinate with the BRC of supervisory side. Nomura engages in the risk management through the Three Lines of Defense framework. First Line of Defense: All executives and employees of the front office for Financial Risk and all executives and employees for Non-Financial Risk are primarily responsible for risk management and assume the consequences associated with business execution and to provide evidence and justify that the risk arising from their business activities is in line with risk appetite.Second Line of Defense: The department responsible for risk management supports and monitors management activities on the First Line of Defense and reports to boards and the senior management. In addition, the Second Line independently evaluates risk management governance established by the First Line. 125 Third Line of Defense: The Internal Audit function examines and evaluates the risk management from an independent standpoint, provides advice for improvement, and reports the examination and evaluation are reported to the Audit Committee. 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 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. Risk Management Governance and Oversight Committee Governance Nomura has established a committee structure to facilitate effective business operations and management of Nomura’s risks. The formal governance structure for risk management within Nomura is as follows:   Board of Directors The BoD determines the policy for the execution of the business of Nomura and other matters prescribed in laws and regulations, supervises the execution of Directors’ and Executive Officers’ duties and has the authority to adopt, alter or abolish the regulations of the EMB. 126 Board Risk Committee The BRC provides specialized oversight to deepen the oversight functions of the BoD. To ensure a high degree of independence, the BRC is chaired by an outside director. The BRC contributes to more sophisticated Group risk management mainly in the areas outlined below: Amendment and abolition of the Risk Appetite Statement Change in risk management framework Results of analysis and verification or future forecasts of risk environment Execution state of the overall risk management and medium- to long-term risk strategies Executive Management Board The EMB deliberates on and determines management strategy, the allocation of management resources and important management matters of Nomura, and seeks to increase shareholder value by promoting effective use of management resources and unified decision-making with regard to the execution of business. The EMB delegates responsibility for deliberation of matters concerning risk management to the Resource Allocation—At the beginning of each financial year, the EMB determines the allocation of management resources and financial resources such as risk-weighted asset and unsecured funding to business units and establishes usage limits for these resources; Business Plan—At the beginning of each financial year, the EMB approves the business plan and budget of Nomura. Introduction of significant new businesses, changes to business plans, the budget and the allocation of management resources during the year are also approved by the EMB; and Reporting—The EMB reports the status of its deliberations to the BoD. Group Upon delegation from the EMB, the In addition, the Upon delegation from the . Global Portfolio Committee (the “GPC”) Upon delegation from the GRMC, the GPC deliberates on or determines 127 Asset Liability Committee (the “ALCO”) Upon delegation from the EMB and the Global Transaction Committee (the “GTC”) Upon delegation from the GPC, the GTC deliberates on or determines individual transactions in line with Nomura’s risk appetite determined by the EMB and thereby Transaction Profile Review Committee (the “TPC”) Upon delegation from the GRMC, the TPC deliberates on and makes decisions on matters relating to transactions and/or clients/counterparties that require consideration of the Nomura Group’s reputational risk in view of the Nomura Group’s Code of Conduct and Risk Appetite Statement, thereby ensuring the sound and effective management of the businesses. Other Committees re-use, limits and stress tests, provides direction on Nomura’s collateral strategy and ensures compliance with regulatory collateral requirements upon delegation from the CRO.Chief Risk Officer The CRO is responsible for setting the overall strategy and direction of the Risk Management Division. The CRO is responsible for supervising the Risk Management Division and maintaining the effectiveness of the risk management framework independently from the business units within Nomura. The CRO regularly reports on the status of Nomura’s risk management to the Chief Financial Officer The CFO is responsible for overall financial strategy of Nomura, and has operational authority and responsibility over Nomura’s liquidity management based on decisions made by the EMB. Chief Compliance Officer The CCO is responsible for supervising the Legal, Compliance and Controls Division non-financial risk management framework (operational risk and reputational risk).Risk Management Division, Finance Division and LCC Division The Risk Management Division, the Finance Division and the LCC Division comprise various departments or units established independently from Nomura’s business units. These three divisions are responsible for 128 establishing and operating risk management processes, establishing and enforcing risk management policies and regulations, verifying the effectiveness of risk management methods, gathering reports from Nomura Group entities, reporting to Executive Officers/Senior Managing Directors and the Risk Policy Framework Policies and procedures are essential tools of governance and define principles, rules and standards, and the specific processes that must be adhered to in order to effectively manage risk at Nomura. Risk management operations are Monitoring, Reporting and Data Integrity Development, consolidation, monitoring and reporting of risk management information (“ Risk Management Enhancement Program U.S. Prime Brokerage Event In March 2021, following the default of one of our prime brokerage clients in the United States on its obligations to post additional margin in respect of its positions with us, we issued a closeout notice to the client following which we began to wind down the positions held by us and liquidate hedges held against those positions. Due to fluctuations in the market values of the hedges against the positions and our expectation that we will not be able to recover those losses from the client, we recognized significant losses during the fourth quarter and fiscal year ended March 31, 2021, and recognized additional losses in the fiscal year ended March 31, 2022. Our transactions with the client comprised (i) total return swaps (the “TRS transactions”), which are transactions that allow the client to obtain synthetic (i.e., derivative) long or short exposure to underlying individual equities or indices, as well as (ii) providing financing against a portfolio of securities in the client’s cash prime brokerage account. To manage credit risk in relation to prime brokerage clients, we require that prime brokerage clients deposit collateral (referred to as “margin”) in respect of their positions with us in accordance with the margin ratios applied to them. These margin ratios are determined based on the results of an internal risk assessment of the specific client and the composition of the client’s positions and may require that they post additional margin based on the effect of market movements on these ratios. TRS transactions are hedged from a market risk perspective by holding long or short positions in individual equities or indices and through derivative transactions, depending on the positions taken by the relevant client. For long equity positions taken by the client, we hold cash equity long positions in the underlying equities as well as derivative transactions. For short equity positions taken by the client, we hold cash equity short positions and derivative transactions. Lending transactions against cash prime brokerage portfolios are generally overcollateralized, and therefore not separately hedged, and we may enter into separate hedges if the value of the collateral falls. Particularly between January and March 2021, transaction amounts and volumes with the client increased significantly as a result of changes in market prices as well as new positions entered into by the client. However, 129 in March 2021, the market value of certain securities in which the client held a large synthetic position experienced a sharp decline, after which we requested that the client deposit additional margin with us pursuant to our contractual agreements with the client. The client defaulted on its obligation to post additional margin, and we issued a closeout notice to the client. It became clear that the client had similar large positions with other financial institutions, and that the client had also defaulted on margin calls with these financial institutions. Although we endeavored to take a disciplined approach to unwind the positions and liquidate the hedges for the TRS transactions, taking into account both market impact and our own trading losses, due to the significant volume of positions being closed by both us and the other affected financial institutions and the effect on market prices, we recognized ¥204.2 billion of losses in earnings reported within Net gain (loss) on trading in the quarter and fiscal year ended March 31, 2021. We also recognized additional provisions for current expected credit losses of ¥41.6 billion in earnings reported within other expenses during the same period against loans extended to the client collateralized by a cash portfolio of securities, reflecting the reduced likelihood of recovery on these lending transactions. All of the positions with the client were closed out and hedges liquidated by May 17, 2021, as a result of which we recognized losses of approximately ¥65.4 billion during the quarter ended June 30, 2021, of which ¥56.1 billion booked in Equities revenues as trading loss and ¥9.3 billion booked as loan loss provision in expenses. Immediately following the incident, we conducted an internal investigation of the underlying facts, and our Audit Committee hired an external law firm to conduct a comprehensive review. In addition, we reviewed our risk management framework, centered on the prime brokerage business, and conducted a comprehensive review by third-party risk management experts on our risk management framework for the Wholesale division and our Risk Management function. Based on those, we have determined various measures to enhance risk management and its governance structure to drive it forward. We took measures 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. In addition, we established the BRC, effective October 29, 2021, which is chaired by an independent director and constituted of non-executive directors, to discuss important risk matters from a standpoint independent of execution. At the same time, the existing committee to discuss risk management on execution side is partially reformed, from the GIRMC to the GRMC, in order to effectively coordinate with the BRC of supervisory side. For detail of the BRC and the GRMC, see ‘Risk Management Governance and Oversight’.Moreover, to build out our platform to provide value-added products and services to our clients as a global financial services company, we have appointed Mr. Christopher Willcox, who has extensive experience with the U.S. financial services business, as the CEO & President of our U.S. subsidiaries Nomura Securities International, Inc. (our registered broker-dealer subsidiary in the U.S.) and Nomura Global Financial Products Inc. (our registered swap dealer subsidiary in the U.S.), as well as Co-CEO of Nomura Holding America, Inc. (the intermediate holding company for our U.S. subsidiaries), effective May 3, 2021.Programme Governance Structure Given our strong commitment to timely remediation of weaknesses across the firm, we have already taken several important steps to launch remediation actions and align resources to ensure successful implementation. Importantly, we have set up a robust governance process in 2021, including the Steering Committee for Enhancement of Risk Management (the “Steering Committee”) which is chaired by Group CEO, and Deputy President as vice chair. The Steering Committee deliberates on matters such as formulating and overseeing the execution of enhancement measures, securing necessary resources, and developing a global cooperation structure to ensure enhancements are achieved. Further, a Chief Transformation Officer (the “CTO”) and members of the Steering Committee will lead efforts to advance group-wide initiatives, and foster collaboration and consistency across regions. To ensure supervision of the enhancement plan at the highest level, the Steering Committee updates the EMB on a regular basis as well as reports progress of the plan directly to the BoD. Under the leadership of the Steering Committee, detailed measures to enhance risk management have already been discussed and implementation has begun. These measures have been categorized into four areas: 130 business strategy, oversight, risk management, and risk culture. We have assigned an executive officer or executive-level person to each area and have prioritized the resources necessary for implementation. Business Strategy By clarifying our Global Markets business strategy and conducting regular reviews of the business portfolio using various methods, we continue our efforts to maintain consistency between the risk profile, and other areas such as the firm’s strategic direction, risk appetite and allocation of resources. In particular, we are committing the required resources and investments to ensure a risk management framework for safe and sound execution of the business thorough review of our businesses and strategic planning processes. For example, we have reviewed and significantly revised the strategy of the Prime Brokerage business to better align with its core capabilities, risk appetite and financial resources position. Oversight In order to build a more robust, global cross-border governance framework, we are reviewing the cross-border booking model and controls at local entities from front office to back office. To strengthen critical first-line risk management functions and enhance oversight of complex business activities carried out globally, we made critical hires including for newly created positions as part of efforts to strengthen business oversight, for example a Global Head of Wholesale Front Office & Risk Control and a Global Head of Wholesale Client Account Management. Risk Management To strengthen the risk control function in the first line and risk management function in the second line, we are in a process of significantly increasing the headcount in each line. We also plan to increase the number of employees in Internal Audit, which is the third line. By the end of October 2021, we have already advanced expertise of our Risk Management function. To increase managers in the risk management function, strengthen our global cooperation and controls, and further enhance risk management, we assigned a new executive officer in charge of risk management at the Tokyo headquarters and implementing other initiatives. To supervise risk management enhancement initiatives and business management, and strengthen our implementation capabilities, we also newly established the Group Risk Management Head Office. The Group Risk Management Head Office monitors risk management operations globally, support the work of the CRO and bolster collaboration with relevant departments. We are also working to improve processes related to risk appetite, by adding quantitative indicators to our Risk Appetite Statement, and by reviewing our limit framework as well as Management Information suite. Risk Culture We established a firm-wide programme to strengthen risk management and foster a shared sense of responsibility toward managing risks. To appropriately evaluate and embed the targeted actions, we have revised the Nomura Group Code of Conduct in March 2022, and will continue further efforts such as expanding conduct-related workshops and annual training programs to all regions, and systematically reviewing and changing policies and practices for providing incentives. To measure the progress of these initiatives, we plan to establish a framework to assess the effectiveness of the program, including risk culture surveys and other metrics. Management of Financial Resources Nomura has established a framework for management of financial resources in order to adequately manage utilization of these resources. The EMB allocates financial resources to business units at the beginning of each 131 financial year. These allocations are used to set revenue forecasts for each business Risk-weighted assets A key component used in the calculation of our consolidated capital adequacy ratios is risk-weighted assets. The EMB determines the risk appetite for our consolidated Tier 1 capital ratio on an annual basis and sets the limits for the usage of risk-weighted assets by each division and by additional lower levels of the division. In addition the EMB determines the risk appetite for the level of exposures under the leverage ratio framework which is a non-risk based measure to supplement risk-weighted assets. See Item 4.B. Business Overview—Regulatory Capital 20-F for the fiscal year ended March 31, 2022, and “Consolidated Regulatory Capital Consolidated Leverage Ratio Available Funds The CFO decides the maximum amount of available funds, provided without posting of any collateral, for allocation within Nomura and the EMB approves the allocation of the funds to each business division. Global Treasury monitors the usage by businesses and reports to the EMB. Classification and Definition of Risk Nomura classifies and defines risks as follows and has established departments or units to manage each risk type.
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Market Risk Management Market risk is the risk of loss arising from fluctuations in values of financial assets and liabilities (including off-balance sheet items) due to fluctuations in market risk factors (interest rates, foreign exchange rates, prices of securities and others).Market Risk Management Process 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 (“SVaR”) and Incremental Risk 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.Value at Risk VaR is a measure of the potential loss due to adverse movements of market factors, such as equity prices, interest rates, credit, foreign exchange rates, and commodities with associated volatilities and correlations. VaR Methodology Assumptions Nomura uses a single VaR model which has been implemented globally in order to determine the total trading VaR. A historical simulation is implemented, where historical market moves over a two-year window are applied to current exposure in order to construct a profit and loss distribution. Potential losses can be estimated at required confidence levels or probabilities. For internal risk management purposes, VaR is calculated across Nomura using a1-day time horizon; this data is presented below. A scenario weighting scheme is employed to ensure that the VaR model responds to changing market volatility. 10-day time horizon, calculated using actual10-day historical market one-year window during a period of financial stress. The SVaR window is regularly calibrated and observations are equally weighted.133 Nomura’s VaR model uses exact time series for each individual risk factor. However, if good quality data is not available, a ‘proxy logic’ maps the exposure to an appropriate time series. The level of proxying taking place is carefully monitored through internal risk management processes and there is a continual effort to source new time series to use in the VaR calculation. Nomura has decided to change the confidence level used to calculate its disclosed one-day VaR from 99% to 95% effective from the end of the fiscal year ended March 31, 2022, as Nomura believes based on its historical experience that the 95th percentile measure better reflects theday-to-day 20-F, Nomura is also providing data for the fiscal years ended March 31, 2021 and 2022 calculated using the previously-used 99% confidence interval.VaR Backtesting The performance of Nomura’s VaR model is 1-day trading losses with the corresponding VaR estimate. Nomura’s VaR model is backtested at different hierarchy levels. Backtesting results are reviewed on a monthly basis by Nomura’s Risk Management Division. NoLimitations and Advantages of VaR VaR aggregates risks from different asset classes in a transparent and intuitive way. However, there are limitations. VaR is a backward-looking measure: it implicitly assumes that distributions and correlations of recent factor moves are adequate to represent moves in the near future. VaR is appropriate for liquid markets and is not appropriate for risk factors that exhibit sudden jumps. Therefore it may understate the impact of severe events. Given these limitations, Nomura uses VaR only as one component of a diverse market risk management process. VaR As described above, Nomura has decided to change the confidence level used to calculate its disclosed one-day VaR from 99% to 95%. See “—VaR Methodology Assumption.”One-day VaR data using the new confidence level of 95% for the fiscal year ended March 31, 2022 is presented below.The following graph shows the daily VaR over the last  134  The following tables show the VaR as of each of the dates indicated for substantially all of Nomura’s trading positions:
As described above, Nomura has decided to change the confidence level used to calculate its disclosed one-day VaR from 99% to 95%. See “—VaR Methodology Assumption.”One-day VaR data calculated using the previous confidence level of 99% for the fiscal year ended March 31, 2022, together with comparative data for the previous fiscal year, is presented below.The following graph shows the daily VaR over the last six quarters for substantially all of Nomura’s trading positions:  135 The following tables show the VaR as of each of the dates indicated for substantially all of Nomura’s trading positions:
Total VaR as of March 31, Stress Testing Nomura conducts market risk stress testing since VaR and sensitivity analysis have limited ability to capture all portfolio risks or tail risks. Stress testing for market risk is conducted regularly, using various scenarios based upon features of trading strategies. Nomura conducts stress testing not only at Non-Trading RiskA major market risk in Nomura’s non-trading portfolio relates to equity investments held for operating purposes and on a long-term basis. Equity investments held for operating purposes are minority stakes in the equity securities of unaffiliated Japanese financial institutions and corporations held in order to promote existing and potential business relationships. Thisnon-trading portfolio is exposed mainly to volatility in the Japanese stock market. One method that can estimate the market risk in this portfolio is to analyze market sensitivity based on changes in the TOPIX, which is a leading index of prices of stocks on the First Section of the Tokyo Stock Exchange.Nomura uses regression analysis covering the previous 90 days which tracks and compares fluctuations in the TOPIX and the fair value of Nomura’s equity investments held for operating purposes, which allows to determine a correlation factor. Based on this analysis for each 10% change in the TOPIX, the fair value of Nomura’s operating equity investments held for operating purposes can be expected to change by 136 the end of March 2021 and at 1,946.40 points at the end of March 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 Nomura manages credit risk on a global basis and on an individual Nomura legal entity basis. Credit Risk Management Framework 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 Credit risk is managed by CRM together with various global and regional risk committees. This Credit Risk Management Process 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 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; and Use of appropriate credit risk mitigants including netting, collateral and hedging. The scope of credit risk management includes counterparty trading and various debt or equity instruments including loans, private equity investments, fund investments, investment securities and any other as deemed necessary from a credit risk management perspective. The evaluation of counterparties’ creditworthiness involves a thorough due diligence and analysis of the business environments in which they operate, their competitive positions, management and financial strength and flexibility. Credit analysts also take into account the corporate structure and any explicit or implicit credit support. CRM evaluates credit risk not only by counterparty, but also by counterparty group. Following the credit analysis, CRM estimates the probability of default of a given counterparty or obligor through an alphanumeric ratings scale similar to that used by rating agencies and a corresponding numeric scale. Credit analysts are responsible for assigning and maintaining the internal ratings, ensuring that each rating is reviewed and approved at least annually. 137 Nomura’s internal rating system employs a range of ratings models to Establishing the amount of counterparty credit risk that Nomura is willing to take to an individual counterparty or counterparty group (setting of credit limits); Determining the level of delegated authority for setting credit limits (including tenor); The frequency of credit reviews (renewal of credit limits); Reporting counterparty credit risk to senior management within Nomura; and Reporting counterparty credit risk to stakeholders outside of Nomura. The Credit Risk Control Unit is a function within the Risk Model Validation Group (“ For regulatory capital calculation purposes, Nomura has been applying the Foundation Internal Rating Based Approach in calculating credit risk-weighted assets 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. Internal ratings are mapped to the probabilities of default (“PD”) which in turn are used for calculating credit risk-weighted assets. PDs are estimated annually by the Risk Methodology Group and validated by the Credit Risk Control Unit through testing of conservativeness and backtesting of PDs used in calculations. Credit Limits and Risk Measures Internal ratings form an integral part in the assignment of credit limits to counterparties. Nomura’s credit limit framework is designed to ensure that Nomura takes appropriate credit risk in a manner that is consistent with its overall risk appetite. Global Credit policies define the delegated authority matrices that establish the maximum aggregated limit amounts and tenors that may be set for any single counterparty group based on their internal rating. Nomura’s main type of counterparty credit risk exposures arise from derivatives transactions or securities financing transactions. Credit exposures against counterparties are managed by means of setting credit limits based upon credit analysis of individual counterparty. Credit risk is managed daily through the monitoring of credit exposure against approved credit limits and the ongoing monitoring of the creditworthiness of Nomura’s counterparties. Nomura’s global credit risk management systems record For derivatives and securities financing transactions, Nomura measures credit risk primarily by way of a Monte Carlo-based simulation model that determines a Potential Exposure profile at a specified confidence level. 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. Loans and lending commitments are measured and monitored on both a funded and unfunded basis. 138 Wrong Way Risk Wrong Way Risk (“WWR”) occurs when exposure to a counterparty is highly correlated with the deterioration of creditworthiness of that counterparty. Nomura has established global policies that govern the management of Stress Testing Stress Testing is an integral part of Nomura’s management of credit risk. Regular stress tests are used to support the assessment of credit risks by counterparties, sectors and regions. The stress tests include potential concentrations that are highlighted as a result of applying shocks to risk factors, probabilities of default or rating migrations. Risk Mitigation Nomura utilizes financial instruments, agreements and practices to assist in the management of credit risk. Nomura enters into legal agreements, such as the International Swap and Derivatives Association, Inc. of a counterparty default. Further reduction in credit risk is achieved through entering into collateral agreements that allow Nomura to obtain collateral from counterparties either upfront or contingent on exposure levels, changes in credit rating or other factors. Credit Risk to Counterparties in Derivatives Transaction The credit exposures arising from Nomura’s trading-related derivatives as of March 31,
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Country Risk At Nomura, country risk is defined as the risk of loss arising from country-specific events (such as political, economic, legal and other events) that affect counterparties and/or issuers within that country, causing those counterparties and/or issuers to be unable to meet financial obligations. Nomura’s country risk framework acts as a complement to other risk management areas and encompasses a number of tools including, but not limited to, country limits, which restrict credit exposure concentration to any given country. Other tools to manage country risk include country ratings as well as country risk policies and procedures that describe responsibilities and delegation for decision-making. Nomura’s credit portfolio remains well-diversified by country and concentrated towards highly-rated countries.
Russia and Ukraine war Since the war in Ukraine began in February 2022, Nomura has been actively monitoring the impact of the conflict on the Ukraine and Russian economies, as well as on other financial markets. As of March 31, 2022, the total direct exposure of Nomura to Ukraine and Russia was not significant. 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 definition140 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.An Operational Risk Management Framework has been established in order to allow Nomura to identify, assess, manage, monitor and report on operational risk. The This framework is set out below: Infrastructure of the framework Policy framework: Sets standards for managing operational risk and details how to monitor adherence to these standards. Training and awareness: Action taken by ORM to improve business understanding of operational risk. Products and Services Event Reporting: This process is used to identify and report any event which resulted in or had the potential to result in a loss or gain or other impact associated with inadequate or failed internal processes, people and systems, or from external events. Risk and Control Self-Assessment Key Risk Indicators Scenario Analysis: The process used to assess and quantify potential high impact, low likelihood operational risk events. During the process actions may be identified to enhance the control environment which are then tracked via the Operational Risk Management Framework. Outputs Analysis and reporting: A key aspect of ORM’s role is to analyze, report, and challenge operational risk information provided by business units, and work with business units to develop action plans to mitigate risks. Operational risk capital calculation: Calculate operational risk capital as required under applicable Basel standards and local regulatory requirements. Regulatory Capital Calculation for Operational Risk Nomura 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 Nomura uses consolidated net revenue as gross income, however for certain consolidated subsidiaries, gross operating profit is used as gross income. Gross income allocation is performed by mapping the net revenue of each business segment as defined in Nomura’s management accounting data to each business line defined in the Standardized Approach as follows:
Nomura calculates the required amount of operational risk capital for each business line by multiplying the allocated annual gross income amount by the appropriate Beta Factor defined above. The operational risk capital for any gross income amount not allocated to a specific business line is determined by multiplying such unallocated gross income amount by a fixed percentage of 18%. The total operational risk capital for Nomura is calculated by aggregating the total amount of operational risk capital required for each business line and unallocated amount and by determining a three-year average. Where the aggregated amount for a given year is negative, then the total operational risk capital amount for that year will be calculated as zero. In any given year, negative amounts in any business line are offset against positive amounts in other business lines. However, negative unallocated amounts are not offset against positive amounts in other business lines and are calculated as zero. Operational risk capital is calculated at the end of September and March each year. 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 Funding and Liquidity Risk Management For further information on funding and liquidity risk management, see Item 5.B. “ Liquidity and Capital Resources—Funding and Liquidity Management Risk Measures and Controls Limit Frameworks The establishment of robust limit monitoring and management is central to appropriate monitoring and management of risk. The limit management frameworks incorporate day-to-day New Business Risk Management The new business approval process represents the starting point for new business in Nomura and exists to support management decision-making and ensure that risks associated with new products and transactions are identified and managed appropriately. The new business approval process consists of two components:
The new business approval process continues to seek assuring the sound and effective management to better meet the various changes observed in the market environment. Stress Testing Stress testing performed at the Nomura Group Stress tests are run on a regular basis or on an ad hoc basis as needed, for example, in response to material changes in the external environment and/or in the Nomura Group risk profile. The results of stress tests with supporting detailed analysis are reported to senior management and other stakeholders as appropriate for the stress test being performed. Stress testing is categorized either as sensitivity analysis or scenario analysis and may be performed on a Nomura Group-wide basis or at more granular levels. Sensitivity analysis is used to quantify the impact of a market move in one or two associated risk factors (for example, equity prices, equity volatilities) in order primarily to capture those risks which may not be readily identified by other risk models; Scenario analysis is used to quantify the impact of a specified event across multiple asset classes and risk classes. This is a primary approach used in performing stress testing at the different hierarchical levels of the Nomura Group; 143 Scenario analysis includes following examples. Nomura Group establishes several stress scenarios to validate risk appetite for capital and liquidity soundness, taking into account the business environment, business’s risk profile, economic environment and forecasts. Group-wide stress to assess the capital adequacy of the Nomura Group under severe but plausible market scenarios is conducted on a quarterly basis at a minimum; and Reverse stress testing, a process of considering the vulnerabilities of the firm and hence how it may react to situations where it becomes difficult to continue its business, and reviewing the results of that analysis, is conducted on an annual basis at a minimum. Stress testing is an integral part of the Nomura Group’s overall governance and is used as a tool for forward-looking risk management, decision-making and enhancing communication amongst Corporate Functions, Business Divisions, and senior management. Item 12. Description of Securities Other Than Equity Securities A. Debt Securities Not applicable. B. Warrants and Rights Not applicable. C. Other Securities Not applicable. D. American Depositary Shares Fees payable by ADR Holders The following table shows the fees and charges that a holder of the Company’s ADR may have to pay, either directly or indirectly:
Fees paid to Nomura by the depositary The Bank of New York Mellon, as depositary, has agreed to pay all its standard out-of-pocket non-registered shareholders of ADRs. From April 1, PART II Item 13. Defaults, Dividend Arrearages and Delinquencies None. Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds None. Item 15. Controls and Procedures Disclosure Controls and Procedures. Our Disclosure Committee is responsible for the establishment and maintenance of our disclosure controls and procedures. As of March 31, 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934). Based on that evaluation, our Group Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, Management’s Annual Report on Internal Control Over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and15d-15(f) under the Securities Exchange Act of 1934). Our management, with the participation of our Group Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our internal control over financial reporting using the criteria set forth in the Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, management concluded that our internal control over financial reporting was effective as of March 31, Changes in Internal Control Over Financial Reporting. Our management also carried out an evaluation, with the participation of our Group Chief Executive Officer and Chief Financial Officer, of changes in our internal control over financial reporting during the year ended March 31, Item 16A. Audit Committee Financial Expert The Company’s Board of Directors has determined that Mr. Noriaki Shimazaki, a member of the Audit Committee, qualifies as an “audit committee financial expert” as such term is defined by the General Instructions for Item 16A of Form 20-F. Additionally, Mr. Noriaki Shimazaki meets the independence requirements applicable to him under Section 303A.06 of the NYSE Listed Company Manual. For a description of his business experience, see Item 6.A“Directors and Senior Management—Directors” Item 16B. Code of Ethics 20-F) consisting of the “Nomura Group Code of 146 replaced our prior code of ethics. The Code of Conduct is periodically reviewed to better respond to the changes in the social and economic conditions and to the expectations of our stakeholders. In March 2022, we revised the previous version of “Nomura Group Code of Conduct” and added a new section on managing risks appropriately, to instill a robust risk culture within the Company, while maintaining the overall structure of the previous version. A copy of the “Nomura Group Code of Conduct 2022” is attached to this annual report as Exhibit 11.1 and a copy of the “Nomura Group Code of Ethics for Financial Professionals” Item 16C. Principal Accountant Fees and Services Ernst & Young ShinNihon LLC has been our principal accountant for the last
Audit-Related Fees included fees for consultations on accounting issues relating to our business. Tax Fees included fees for services relating to tax planning and compliance. All Other Fees included fees for services relating to advice with respect to regulations and disclosures under the Financial Instruments and Exchange Act in connection with our underwriting business. In accordance with the regulations of the Securities and Exchange Commission issued pursuant to Sections 202 and 208 of the Sarbanes-Oxley Act of 2002, our Audit Committee has adopted a pre-approval policy regarding the engagements of our principal accountant. Under thepre-approval policy, there are two types ofpre-approval procedures, “GeneralPre-Approval” and “SpecificPre-Approval.” Under “General Pre-Approval,” our CFO in conjunction with our principal accountant must make a proposal to our Audit Committee for the types of services and estimated fee levels of each category of services to be generallypre-approved. Such a proposal must be made at least annually. The Audit Committee will discuss the proposal and if necessary, consult with outside professionals as to whether the proposed services would impair the independence of our principal accountant. If such proposal is accepted, the Audit Committee will inform our CFO and principal accountant of the services that have beenpre-approved and are included in a “GeneralPre-Approved List.” Our Audit Committee is informed of each such service that is provided.Under “Specific Pre-Approval,” if any proposed services are not on the GeneralPre-Approved List, our CFO is required to submit an application to the Audit Committee for such services. After reviewing the details and estimated fee levels for each engagement and if necessary, consulting with outside professionals as to whether the proposed services would impair the independence of the principal accountant, the Audit Committee147 may make a specific pre-approval decision on these services. Also, if any approved services in the GeneralPre-Approved List exceed the fee levels prescribed on the List, our CFO is required to submit an application to the Audit Committee for new fee levels for such services. The Audit Committee may make apre-approval decision after reviewing the details of the services and the estimated fee levels for each engagement.None of the services described in the first paragraph under this Item 16C were waived from the pre-approval requirement pursuant to Rule2-01(c)(7)(i)(C) of RegulationS-X. Item 16D. Exemptions from the Listing Standards for Audit Committees Not applicable. Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers During the year ended March 31, 459-1 of the Companies Act. For an explanation of the right of our shareholders to demand such repurchases by us, see “Description of rights of each class of securities registered under Section 12 of the Securities Exchange Act of 1934 The following table sets forth certain information with respect to our purchases of shares of our common stock during the year ended March 31,
On Nomura recognizes the need to set out flexible financial strategies that allow the Board of Directors to respond quickly to any changes in the business environment and is looking into implementing further share buybacks. Details will be announced when finalized. 148 On April 26, 2022, we announced a resolution of the Board of Directors to establish a share buyback program in accordance with Article 459-1 of the Companies Act. The period of repurchase under the program is from May 17, 2022 to March 31, 2023, and we are authorized to purchase up to 50,000,000 shares of our common stock or to a maximum of ¥30 billion.As of May 31, Item 16F. Change in Registrant’s Certifying Accountant Not applicable. Item 16G. Corporate Governance Companies listed on the NYSE must comply with certain standards regarding corporate governance under Section 303A of the NYSE Listed Company Manual. However, listed companies that are foreign private issuers, such as the Company, are permitted to follow home country practice in lieu of certain provisions of Section 303A. The following table shows the significant differences between the corporate governance practices followed by U.S. listed companies under Section 303A of the NYSE Listed Company Manual and those followed by the Company. The information set forth below is current as of the date of this annual report.
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Item 16H. Mine Safety Disclosure Not applicable. Item 16I. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 150 PART III Item 17. Financial Statements In lieu of responding to this item, we have responded to Item 18 of this annual report. Item 18. Financial Statements The information required by this item is set forth in our consolidated financial statements included in this annual report. Item 19. Exhibits
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The Company has not included as exhibits certain instruments with respect to our long-term debt. The amount of debt authorized under each such debt instrument does not exceed 10% or our total assets. We will furnish a copy of any such instrument to the SEC upon request. NOMURA HOLDINGS, INC. INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-1 Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of Nomura Holdings, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Nomura Holdings, Inc. (the Company) as of March 31, We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of March 31, Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. F-2
F-3
/s/ Ernst & Young ShinNihon LLCWe have served as the Company’s auditor for SEC reporting purposes since 2002, and as its Japanese statutory auditor since 1973, which includes the years we served as joint auditors between 1978 and 2002. Tokyo, Japan June Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of Nomura Holdings, Inc. Opinion on Internal Control over Financial Reporting We have audited Nomura Holdings, Inc.’s internal control over financial reporting as of March 31, We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of Nomura Holdings, Inc. (the Company) as of March 31, Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young ShinNihon LLC Tokyo, Japan June F-5 NOMURA HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS
The accompanying notes are an integral part of these consolidated financial statements. NOMURA HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS—(Continued)
The accompanying notes are an integral part of these consolidated financial statements. 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
The accompanying notes are an integral part of these consolidated financial statements. F-8 NOMURA HOLDINGS, INC. CONSOLIDATED STATEMENTS OF INCOME
The accompanying notes are an integral part of these consolidated financial statements. F-9 NOMURA HOLDINGS, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
The accompanying notes are an integral part of these consolidated financial statements. NOMURA HOLDINGS, INC. CONSOLIDATED STATEMENTS OF
F-11 NOMURA HOLDINGS, INC. CONSOLIDATED STATEMENTS OF
The accompanying notes are an integral part of these consolidated financial statements.
NOMURA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
F-13 NOMURA HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued) The following table presents a reconciliation of cash and cash equivalents
Non-cash — Total amount of ¥41,279 million and ¥32,208 million, respectively.right-of-use assets recognized for the years ended March 31, 2020, 2021 and 2022 were ¥18,026 million,The accompanying notes are an integral part of these consolidated financial statements. NOMURA HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. Summary of accounting policies: Description of business— Nomura Holdings, Inc. (“Company”) and its broker-dealer, banking and other financial services subsidiaries provide investment, financing and related services to individual, institutional and government clients on a global basis. The Company and other entities in which it has a controlling financial interest are collectively referred to as “Nomura” within these consolidated financial statements. Nomura operates its business through various divisions based upon the nature of specific products and services, its main client base and its management structure. On April 1, 2021, the Asset Management Division and the Merchant Banking Division were combined and the Investment Management Division was established. Nomura reports operating results through 3 business segments: Retail, In its Retail segment, Nomura provides investment consultation services mainly to individual clients in Japan. In its Basis of presentation— The accounting and financial reporting policies of These consolidated financial statements include the financial statements of the Company and other entities in which it has a controlling financial interest. Nomura initially determines whether it has a controlling financial interest in an entity by evaluating whether the entity is a variable interest entity (“VIE”) under Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) 810 “ Consolidation For entities other than VIEs, Nomura is generally determined to have a controlling financial interest in an entity when it owns a majority of the voting interests. Equity investments in entities in which Nomura has significant influence over operating and financial decisions (generally defined as a holding of 20 to 50 percent of the voting stock of a corporate entity, or at least 3 percent of a limited partnership) are accounted for under the equity method of accounting (“equity method investments”) and reported within Other assets — Investments in and advances to affiliated companies Financial Instruments Trading assets, Private equity and debt investments or Other — Other F-15 NOMURA HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Equity investments Trading assets, Private equity and debt investments or — Other Certain consolidated entities “Financial — Investment Companies The Company’s principal subsidiaries include Nomura Securities Co., Ltd. (“NSC”), Nomura Securities International, Inc. (“NSI”), Nomura International plc (“NIP”) and Nomura Financial Products & Services, Inc. (“NFPS”). All material intercompany transactions and balances have been eliminated on consolidation. Use of Various references are made throughout the notes to these consolidated financial statements where critical accounting estimates based on management judgment have been made, the nature of the estimates, the underlying assumptions made by management used to derive those estimates and how Fair value of financial A significant amount of Nomura’s financial assets and financial liabilities are carried at fair value, with changes in fair value recognized through the consolidated statements of income and/ or the consolidated statements of comprehensive income. Use of a fair value measurement is either specifically required under U.S. GAAP or Nomura makes an election to use a fair value measurement 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 both cases, fair value is generally determined in accordance with ASC 820 “ Fair Value Measurements and Disclosures Fair value measurements F -16NOMURA HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued) The fair Allowance for current expected credit losses— Management recognizes allowance for current expected credit losses on financial assets not carried at fair value and certain off-balance sheet financial instruments including unfunded loan commitments not carried at fair value in accordance with ASC 326,“Financial Instruments—Credit Losses” off-balance sheet financial instruments.Current expected credit losses are calculated over the expected life of the financial instruments in scope of the requirements on an individual or a portfolio basis, considering all relevant, reasonable supportable information available about the collectability of cash flows, including information about past events, current conditions and future forecasts. Accrued interest receivables are excluded from the amortized cost basis of financing receivables when calculating current expected credit losses. 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. Allowances for current expected credit losses against recognized financial instruments are reported in the consolidated balance sheets within Allowances for current expected credit losses off-balance sheet financial instruments are reported in the consolidated balance sheets withinOther Other expenses. See Note 7 “Financing receivables” Transfers of financial assets— Nomura accounts for the transfer of a financial asset as a sale when Nomura relinquishes control over the asset by meeting the following conditions: (a) the asset has been isolated from the transferor (even in bankruptcy or other receivership), (b) the transferee has the right to pledge or exchange the asset received, or if the transferee is an entity whose sole purpose is to engage in securitization or asset-backed financing activities, if, the holders of its beneficial interests have the right to pledge or exchange the beneficial interests held and (c) the transferor has not maintained effective control over the transferred asset. In connection with its securitization activities, Nomura utilizes special purpose entities (“SPEs”) to securitize commercial and residential mortgage loans, government and corporate securities Trading assets — Net gain on trading F -17NOMURA HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Foreign currency translation— The financial statements of the Company’s subsidiaries and operations are measured using their functional currency which is the currency of the primary economic environment in which the entity operates. All assets and liabilities of subsidiaries and operations which have a functional currency other than Japanese Yen are translated into Japanese Yen at exchange rates in effect at the balance sheet date, and all revenue and expenses are translated at the average exchange rates for the respective years and the resulting translation adjustments are accumulated and reported within Accumulated other comprehensive income (loss) Foreign currency assets and liabilities are translated at exchange rates in effect at the balance sheet date and the resulting translation gains or losses are credited or charged to the consolidated statements of income. Revenue from services provided to clients— Nomura earns revenue through fees and commissions from providing financial services to Revenues are recognized when or as the Revenues from providing Commissions, Revenue — Asset management and portfolio service fees Revenue — Fees from investment banking Costs to obtain or fulfill the underlying contract to provide services to a Other assets Trading assets and trading Trading assets Financial assets are classified as being held for trading when any of the following criteria are met: The financial assets are originated or acquired with the intention to generate profit through sale of the financial assets in the short-term; The financial assets are part of a portfolio of identified financial instruments that are managed together for the purposes of short-term profit or arbitrage profit-taking; or The financial assets are derivative assets. Trading liabilities —Net gain on trading F -18NOMURA HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Certain nonderivative trading liabilities are held to economically hedge the price risk of investments in equity securities held for operating purposes. Changes in fair value of these trading liabilities are reported within Revenue—Gain (loss) on investments in equity securities Collateralized agreements and collateralized financing— Collateralized agreements Securities purchased under agreements to resell Securities borrowed Collateralized financing of repurchase agreements disclosed as Securities sold under agreements to repurchase Securities loaned Reverse repurchase and repurchase agreements principally involve the buying or selling of securities under agreements with clients to resell or repurchase these securities to or from those clients, respectively. These transactions are generally accounted for as collateralized agreements or collateralized financing transactions and are recognized in the consolidated balance sheets at the amount for which the securities were originally acquired or sold. Certain reverse repurchase and repurchase agreements are carried at fair value through election of the fair value option. Nomura also enters into Gensaki Repo transactions which are the standard type of repurchase agreement used in Japanese financial markets. Gensaki Repo transactions contain margin requirements, rights of security substitution, and certain restrictions on the client’s right to sell or repledge the transferred securities. Gensaki Repo transactions are accounted for as collateralized agreements or collateralized financing transactions and are recognized on the consolidated balance sheets at the amount that the securities were originally acquired or sold. Securities borrowing and lending transactions are generally accounted for as collateralized agreements and collateralized financing transactions, respectively. These transactions are generally cash collateralized and are recognized on the consolidated balance sheets at the amount of cash collateral advanced or received. Allowances for current expected credit losses recognized against securities borrowing transactions are not significant due to an ongoing monitoring of collateral and the short expected life of these transactions. Where Nomura acts as lenders in securities borrowing and lending transactions and receives securities that can be sold or pledged as collateral, Nomura recognizes the securities received at fair value within Other assets—Other Other liabilities. See Note 7 “Financing receivables” COVID-19 pandemic on the approach to calculation of current expected credit losses during the years ended March 31, 2021 and 2022.Offsetting of collateralized agreements and collateralized financings Reverse repurchase agreements and repurchase agreements (including Gensaki Repo transactions) accounted for as collateralized agreements and collateralized financing transactions, respectively, entered into with the same counterparty and documented under a master netting agreement are offset in the consolidated balance sheets where the specific criteria defined by ASC 210-20 “Balance —Offsetting 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 ofclose-out and offsetting rights under the master netting agreement.210-20 are met.F -19NOMURA HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Other secured borrowings Trading balances of secured borrowings Transfers and Servicing Long-term borrowings 6 “Securitizations and Variable Interest All Nomura-owned securities pledged to counterparties where the counterparty has the right to sell or repledge the securities, including collateral transferred under Gensaki Repo transactions, are reported parenthetically within Trading assets as Securities pledged as collateral See Note 5 “Collateralized Nomura uses a variety of non-trading purposes. Trading assets or Trading liabilities Short-term borrowings or Long-term borrowings Changes in fair value are recognized either through the consolidated statements of income or the consolidated statements of comprehensive income depending on the purpose for which the derivatives are used. Derivatives —Net gain on trading Derivatives held for In addition to its trading activities, Nomura uses non-trading purposes Derivatives and Hedging Fair value hedges Nomura designates certain derivative non-trading debt securities, respectively. These derivatives are effective in reducing the risk associated with the exposure being hedged and they are highly correlated with changes in the fair value of the underlying hedged items, both at inception andF -20NOMURA HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued) throughout the life of the hedging relationship. Changes in fair value of the hedging derivatives are reported together with those of the hedged financial assets and liabilities through the consolidated statements of income within Interest expense Revenue —Other Nomura designates certain derivatives as hedges of the net investment in foreign operations related 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 is excluded from the measurement of hedge effectiveness and are reported in the consolidated statements of income within—Other Accumulated other comprehensive income (loss) Economic expense hedges Nomura designates certain derivatives as economic expense hedges to manage equity price risk or foreign currency risk of certain expenses arising from forecasted transactions or firm commitments. Changes in fair value of these derivatives are reported in the same line item in the consolidated statements of income where expenses arising from the hedged transactions are reported. Offsetting of derivatives Derivative assets and liabilities with the same counterparty documented under a legally enforceable master netting agreement and the related cash collateral receivables and payables are presented on a net basis in the consolidated balance sheets where the specific criteria defined by ASC 210-20 and ASC 815 are met.Settlement-to-market Exchange traded and centrally cleared OTC derivatives typically involve daily variation margin payments and receipts which reflect changes in the fair value of the related derivatives. Such variation margin amounts are accounted for as either a partial settlement of the derivative or as a separate cash collateral receivable or payable depending on the legal form of the arrangement with the relevant central clearing counterparty. See Note 3 “ Loans receivable— Loans receivable are loans which management intends to hold for the foreseeable future. Loans receivable are either carried at fair value or at amortized cost. Interest earned on loans receivable is —Interest and dividends Loans receivable carried at fair value Certain loans which are risk managed on a fair value basis are carried at fair value through election of the fair value option. Nomura makes this election to mitigate volatility in the consolidated statements of income caused by the difference in measurement basis that would otherwise exist between the loans and the derivatives used to risk manage those loans. Changes in the fair value of loans receivable carried at fair value are reported in the consolidated statements of income within —Net gain on trading F -21NOMURA HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Loans receivable carried at amortized cost Loans receivable which are not carried at fair value are carried at amortized cost. Amortized cost represents cost adjusted for deferred fees and direct costs, unamortized premiums or discounts on purchased loans and after deducting Loan origination fees, net of direct origination costs, are amortized to —Interest and dividends Modifications of loans receivable where the borrower is in financial difficulty and Nomura has granted a financial concession are typically accounted for as troubled debt restructurings (“TDRs”) COVID-19 pandemic, certain modifications of loans receivable which COVID-19 pandemic, the nature of the concession See Note 7 “ Financing receivables Other receivables— Receivables from customers on client securities transactions, amounts receivable from Receivables from other than customers Receivables from other than customers These amounts are carried at contractual amounts due less any applicable allowance for current expected credit losses recognized under ASC 326 which See Note 7 “ Financing receivables” Loan commitments— Unfunded loan commitments written by Nomura are accounted for as eitheroff-balance sheet instruments, or are carried at fair value on a recurring basis either as trading instruments or through election of the fair value option.These loan commitments are generally accounted for in a manner consistent with the accounting for the loan receivable upon funding. Where the loan receivable will be classified as a trading asset or will be elected for the fair value option, the loan commitment is also generally held at fair value, with changes in fair value reported in the consolidated statements of income within —Net gain on trading F -22NOMURA HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued) For loan commitments where the loan will be held for the foreseeable future and will not be elected for the fair value option, Nomura recognizes 326which Nomura initially adopted from April 1, 2020. As of March 31, 2020, the allowance for incurred credit losses commitments. Loan commitment fees are generally deferred and recognized over the term of the loan when funded as an adjustment to yield. If drawdown of the loan commitment is considered remote, loan commitment fees are recognized over the commitment period as service revenue.See Note 7 “Financing receivables” for further information including how allowances for current expected credit losses under ASC 326 are determined.Payables and deposits— Payables to customers Payables to other than customers failed-to-receive Payables to other than customers was ¥205,211 and ¥67,258 million as of March 31, 2021 and March 31, 2022, respectively. Deposits received at banks Office buildings, land, equipment and facilities— Office buildings, land, equipment and facilities, owned and held for use by Nomura are stated at cost, net of accumulated depreciation and amortization, except for land, which is stated at cost. Significant renewals and additions are capitalized at cost. Maintenance, repairs and minor renewals are expensed as incurred in the consolidated statements of income. Leases and subleases entered into by Nomura as either lessor or lessee are classified as either operating or finance leases on inception date in accordance with ASC 842 right-of-use Other assets—Office buildings, land, equipment and facilities Other liabilities Lease liabilities are initially measured at present value of the future minimum lease payments over the expected lease term. The future minimum lease payments are discounted using a relevant Nomura incremental borrowing rate as derived from information available at lease commencement date. The expected lease term is generally determined based on the contractual maturity of the lease, and adjusted for periods covered by options to extend or terminate the lease when Nomura is reasonably certain to exercise those options. ROU assets are initially measured at the amount of lease liabilities, and adjusted for any prepaid lease payments, initial direct costs incurred and any lease incentives received. After lease commencement date, for operating leases Nomura as lessee recognizes lease expense over the lease term generally on a straight-line basis within Occupancy and related depreciation Information F -23NOMURA HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued) processing and communications
Depreciation and amortization charges of owned assets are generally computed using the straight-line method and recognized over the estimated useful lives of each asset. The estimated useful life of an asset takes into consideration technological change, normal deterioration and actual physical usage by Nomura. Leasehold improvements are depreciated over the shorter of their useful life or the term of The estimated useful lives for significant asset classes are as follows:
Long-lived assets, including ROU assets and software assets but excluding goodwill and indefinite-lived intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the estimated future undiscounted cash flows generated by the asset is less than the carrying amount of the asset, a loss is recognized to the extent that the carrying value exceeds its fair value.See Note 8 Leases Investments in equity securities— Nomura holds minority stakes in the equity securities of unaffiliated Japanese financial institutions and corporations in order to promote existing and potential business relationships. These companies often have similar investments in Nomura. Such cross-holdings are a customary business practice in Japan and provide a way for companies to manage shareholder relationships. These investments, which Nomura refers to as being held for operating purposes, are carried at fair value and reported within Other — Investments in equity securities — Gain (loss) on investments in equity securities Other non-trading debt and equity securities—Certain non-trading subsidiaries within Nomura hold debt securities and minority stakes in equity securities fornon-trading purposes.Non-trading securities held bynon-trading subsidiaries are carried at fair value and reported withinOther — Non-trading debt securitiesOther — Other — Other non-trading securities are reported within— Other Short-term and long-term borrowings— Short-term borrowings are defined as borrowings which are due on demand, which have a contractual maturity of one year or less at issuance date, or which have a longer contractual maturity but which contain F -24NOMURA HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued) features outside of Nomura’s control that allows the investor to demand redemption within one year from original issuance date. Short-term and long-term borrowings primarily consist of commercial paper, bank borrowings, and certain structured notes issued by Nomura and SPEs consolidated by Nomura, and financial liabilities recognized in transfers of financial assets which are accounted for as financings rather than sales under ASC 860 (“secured financing transactions”). Of these financial liabilities, certain structured notes and secured financing transactions are accounted for at fair value on a recurring basis through election of the fair value option. Other short and long-term borrowings are carried at amortized cost. Structured notes are debt securities which contain embedded features (often meeting the accounting definition of a derivative) 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 variable(s) such as an equity or equity index, commodity price, foreign exchange rate, credit rating of a third party or more complex interest rate calculation. Structured borrowings are borrowings that have similar characteristics as structured notes. All structured notes Changes in the fair value of structured notes elected for the fair value option — Net gain on trading Other comprehensive income in the consolidated balance sheets. See Note 11 “ Borrowings Income taxes— Deferred tax assets and liabilities are recognized to reflect the expected future tax consequences of operating loss carryforwards, tax credit carryforwards and temporary differences between the carrying amounts for financial reporting purposes and the tax bases of assets and liabilities based upon enacted tax laws and tax rates. Nomura recognizes deferred tax assets to the extent it believes that it is more likely than not that a benefit will be realized. A valuation allowance is established against deferred tax assets for tax benefits available to Nomura that are not deemed more likely than not to be realized. Deferred tax assets and deferred tax liabilities that relate to the same tax-paying component within a particular tax jurisdiction are offset in the consolidated balance sheets. Net deferred tax assets and net deferred tax liabilities are reported withinOther — Other Other liabilities Nomura recognizes and measures unrecognized tax benefits based on Nomura’s estimate of the likelihood, based on technical merits, that tax positions will be sustained upon examination based on the facts and circumstances and information available at the end of each period. Nomura adjusts the level of unrecognized tax benefits when there is more information available, or when an event occurs requiring a change. The reassessment of unrecognized tax benefits could have a material impact on Nomura’s effective tax rate in the period in which it occurs. Nomura tax-related interest and penalties withinIncome tax expense F-25 NOMURA HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued) See Note Income taxes Stock-based and other compensation awards— Stock-based awards issued by Nomura to senior management and other employees are classified as either equity or liability awards depending on the terms of the award. Stock-based awards such as Stock Acquisition Rights (“SARs”) and Restricted Stock Units (“RSUs”) which are expected to be settled by the delivery of the Company’s common stock are classified as equity awards. For these awards, total compensation cost is generally fixed at the grant date and measured using the grant-date fair value of the award, net of any amount the employee is obligated to pay and estimated forfeitures. Stock-based awards such as Notional Stock Units (“NSUs”) and Collared Notional Stock Units (“CSUs”) which are expected to be settled in cash are For both equity and liability awards, fair value is determined either by using option pricing models, the market price of the Company’s common stock or the price of the third party index, as appropriate. Compensation cost is recognized in the consolidated statements of income over the requisite service period, which generally is equal to the contractual vesting period. Where an award has graded vesting, compensation expense is recognized using the accelerated recognition method. Certain deferred compensation awards pre-defined election window if certain criteria based on corporate title and length of service within Nomura are met. The requisite service period for these awards ends on the earlier of the contractual vesting date and the date that the recipients become eligible for or claim FCR.See Note 14 “ Deferred compensation awards Earnings per share— The computation of basic earnings per share is based on the weighted average number of shares outstanding during the year. Diluted earnings per share reflects the assumed conversion of all dilutive securities based on the most advantageous conversion rate or exercise price available to the investors, and assuming conversion of convertible debt under the if-converted method.See Note 12 “ Earnings per share Cash and cash equivalents— Nomura defines cash and cash equivalents as cash on hand and demand deposits with banks. Goodwill and intangible assets— Goodwill is recognized upon completion of a business combination as the difference between the purchase price and the fair value of the net assets acquired. Subsequent to initial recognition, goodwill is not amortized but F-26 NOMURA HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued) is tested for impairment at a reporting unit level during the fourth quarter of each fiscal year, or more frequently during earlier interim periods if events or circumstances indicate there may be impairment. Nomura’s reporting units are at the same level as or one level below its business segments. Nomura tests goodwill of each separate reporting unit by initially qualitatively assessing whether events and circumstances indicate that it is more likely than not (i.e., greater than 50% 2017-04 value. Intangible assets not subject to amortization (“indefinite-lived intangible assets”) are tested for impairment on an individual asset basis during the fourth quarter of each fiscal year, or more frequently during earlier interim periods if events or circumstances indicate there may be impairment. Similar to goodwill, Nomura tests an indefinite-lived intangible asset by initially qualitatively assessing whether events or circumstances indicate that it is more likely than not that the fair value of the intangible asset is less than its carrying amount. If such assessment indicates fair value is not less than the carrying value, the intangible asset is deemed not to be impaired and no further analysis is required. If it is more likely than not that the fair value of the intangible asset is below its carrying value, the current estimated fair value of the intangible asset is compared with its carrying value. An impairment loss is recognized if the carrying value of the intangible asset exceeds its estimated fair value. Intangible assets with finite lives (“finite-lived intangible assets”) are amortized over their estimated useful lives and tested for impairment either individually or with other assets (“asset group”) when events and circumstances indicate that the carrying value of the intangible asset (or asset group) may not be recoverable. A finite-lived intangible asset is impaired when its carrying amount or the carrying amount of the asset group exceeds its fair value. An impairment loss is recognized only if the carrying amount of the intangible asset (or asset group) is not recoverable and exceeds its fair value. For both goodwill and intangible assets, to the extent an impairment loss is recognized, the loss establishes a new cost basis for the asset which cannot be subsequently reversed. See Note 10 “ Other assets — Office buildings, land, equipment and facilities and Other / Other liabilities Nomura’s equity method investments are tested in their entirety for other-than-temporary impairment when there is an indication of impairment. The underlying assets associated with the equity method investments, including goodwill, are not tested separately for impairment. Employee benefit plans— Nomura provides certain eligible employees with various benefit plans, including pensions and other post-retirement benefits. These benefit plans are classified as either defined benefit plans or defined contribution plans. Plan assets and benefit obligations, as well as the net periodic benefit cost of a defined benefit pension or post-retirement benefit plan, are recognized based on various actuarial assumptions such as discount rates, F-2 7 NOMURA HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued) expected return on plan assets and future compensation levels at the balance sheet date. Actuarial gains and losses in excess of 10% of the greater of the projected benefit obligation or the fair value of plan assets and unrecognized prior service costs or credits are amortized to net periodic benefit cost on a straight-line basis over the average remaining service life of active employees expected to receive benefits. The overfunded or underfunded status of a plan is reported within Other — Other Other liabilities Other comprehensive income (loss) net-of-tax The net periodic pension and other benefit cost of defined contribution plans is recognized within Compensation and benefits See Note 13 “ Employee benefit plans New accounting pronouncements adopted during the current year— However, Nomura has elected to apply certain practical reliefs provided by the following new accounting pronouncements during the year ended March 31, 2022:
F-2 8 NOMURA HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Future accounting developments— The following table presents a summary of new authoritative accounting pronouncements relevant to Nomura which will be adopted on or after April 1, 2022 and which may have a material impact on these consolidated financial statements:
F- 29 NOMURA HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
2. Fair value measurements: The fair value of financial instruments A significant amount of Nomura’s financial instruments is measured at fair value. Financial assets measured at fair value on a recurring basis are reported in the consolidated balance sheets withinTrading assets and private equity and debt investments, Loans and receivables, Collateralized agreements Other assets Trading liabilities, Short-term borrowings, Payables and deposits, Collateralized financing, Long-term borrowings 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 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, COVID-19 pandemic in 2020 and 2021 and during the invasion of Ukraine by the Russian Federation in 2022, 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. F -30 NOMURA HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Various financial instruments, including cash instruments and over-the-counter 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.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 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 F -31 NOMURA HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued) 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 d 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.F-3 NOMURA HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued) The following tables present the amounts of Nomura’s financial instruments measured at fair value on a recurring basis as of March 31,
F-3 NOMURA HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
F-3 NOMURA HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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 Other assets Other assets 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, Private equity and debt investments — F-3 5 NOMURA HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued) 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 — 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. Certainnon-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 valuation 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 LevelCommercial mortgage-backed securities (“CMBS”) Residential mortgage-backed securities (“RMBS”) — Real estate-backed securities — F-3 NOMURA HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued) 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. Collateralized debt obligations (“CDOs”) and other — Investment trust funds and other — Investment trust funds and other — Equity contracts — — Interest rate contracts — F-3 NOMURA HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued) 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 — Derivatives — Foreign exchange contracts 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 and receivables Collateralized agreements and Collateralized financing techniques. The significant valuation inputs used include interest rates and collateral funding spreads such as F-3 8 NOMURA HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued) 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 securitiesnon-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 asGovernment, agency and municipal securities Bank and corporate debt securities Short-term long-term borrowings (“Structured notes”) 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 valuation 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”) Transfer and Servicing 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 F- NOMURA HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued) instrument and the available benchmark instrument is considered as an unobservable valuation input. Other techniques for determining an appropriate value for unobservable valuation 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. F-4 NOMURA HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Quantitative and qualitative information regarding significant unobservable valuation 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,
F-4 NOMURA HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
F-4 NOMURA HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
F-4 3 NOMURA HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
F-4 4 NOMURA HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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