20-F 1 d763290d20f.htm ANNUAL REPORT ANNUAL REPORT
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 20-F

 

 

 

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2019

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to            

OR

 

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report

Commission file number: 1-15270

 

 

Nomura Horudingusu Kabushiki Kaisha

(Exact name of registrant as specified in its charter)

 

 

Nomura Holdings, Inc.

(Translation of registrant’s name into English)

 

 

 

Japan  

9-1, Nihonbashi 1-chome

Chuo-ku, Tokyo 103-8645

Japan

(Jurisdiction of incorporation or organization)   (Address of principal executive offices)

Takumi Kitamura, 81-3-5255-1000, 81-3-6746-7850

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

 

 

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

 

Trading Symbol(s)

 

Name of Each Exchange On Which Registered

Common Stock*   NMR   New York Stock Exchange

 

*

Not for trading, but only in connection with the registration of the American Depositary Shares, each representing one share of Common Stock.

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

(Title of Class)

 

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

As of March 31, 2019, 3,310,800,799 shares of Common Stock were outstanding, including 29,311,158 shares represented by 29,311,158 American Depositary Shares.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     ☒  Yes    ☐  No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.     ☐  Yes    ☒  No

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer  ☒    Accelerated filer  ☐    Non-accelerated filer  ☐    Emerging growth company  ☐

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 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 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ☐  Yes    ☒  No

(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    ☐  No

 

 

 


Table of Contents

TABLE OF CONTENTS

 

         Page
  PART I   

Item 1.

 

Identity of Directors, Senior Management and Advisers

   2

Item 2.

 

Offer Statistics and Expected Timetable

   2

Item 3.

 

Key Information

   2

Item 4.

 

Information on the Company

   20

Item 4A.

 

Unresolved Staff Comments

   40

Item 5.

 

Operating and Financial Review and Prospects

   40

Item 6.

 

Directors, Senior Management and Employees

   77

Item 7.

 

Major Shareholders and Related Party Transactions

   98

Item 8.

 

Financial Information

   99

Item 9.

 

The Offer and Listing

   99

Item 10.

 

Additional Information

   100

Item 11.

 

Quantitative and Qualitative Disclosures about Market Risk

   108

Item 12.

 

Description of Securities Other Than Equity Securities

   123
  PART II   

Item 13.

 

Defaults, Dividend Arrearages and Delinquencies

   125

Item 14.

 

Material Modifications to the Rights of Security Holders and Use of Proceeds

   125

Item 15.

 

Controls and Procedures

   125

Item 16A.

 

Audit Committee Financial Expert

   125

Item 16B.

 

Code of Ethics

   125

Item 16C.

 

Principal Accountant Fees and Services

   126

Item 16D.

 

Exemptions from the Listing Standards for Audit Committees

   127

Item 16E.

 

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

   127

Item 16F.

 

Change in Registrant’s Certifying Accountant

   128

Item 16G.

 

Corporate Governance

   128

Item 16H.

 

Mine Safety Disclosure

   129
  PART III   

Item 17.

 

Financial Statements

   130

Item 18.

 

Financial Statements

   130

Item 19.

 

Exhibits

   131

Index to the Consolidated Financial Statements

   F-1

 

 

 

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As used in this annual report, references to the “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

The following table presents selected financial information as of and for the years ended March 31, 2015, 2016, 2017, 2018 and 2019 which is derived from our consolidated financial statements. The consolidated balance sheets for the years ended March 31, 2018 and 2019, the consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the years ended March 31, 2017, 2018 and 2019, and notes thereto appear elsewhere in this annual report. These financial statements are prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”). Certain reclassifications of previously reported amounts have been made to conform to the current period presentation.

 

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The selected consolidated financial information set forth below should be read in conjunction with Item 5. “Operating and Financial Review and Prospects” in this annual report and our consolidated financial statements and notes thereto included in this annual report.

 

    Millions of yen, except per share data and percentages  
    Year ended March 31  
    2015     2016     2017     2018     2019  

Statement of income data:

         

Revenue

  ¥ 1,930,588     ¥ 1,723,096     ¥ 1,715,516     ¥ 1,972,158     ¥ 1,835,118  

Interest expense

    326,412       327,415       312,319       475,189       718,348  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

    1,604,176       1,395,681       1,403,197       1,496,969       1,116,770  

Non-interest expenses

    1,257,417       1,230,523       1,080,402       1,168,811       1,154,471  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

    346,759       165,158       322,795       328,158       (37,701

Income tax expense

    120,780       22,596       80,229       103,866       57,010  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  ¥ 225,979     ¥ 142,562     ¥ 242,566     ¥ 224,292     ¥ (94,711

Less: Net income attributable to noncontrolling interests

    1,194       11,012       2,949       4,949       5,731  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

  ¥ 224,785     ¥ 131,550     ¥ 239,617     ¥ 219,343     ¥ (100,442
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance sheet data (period end):

         

Total assets(1)

  ¥ 41,705,236     ¥ 40,934,217     ¥ 42,531,972     ¥ 40,343,947     ¥ 40,969,439  

Total NHI shareholders’ equity

    2,707,774       2,700,239       2,789,916       2,749,320       2,631,061  

Total equity

    2,744,946       2,743,015       2,843,791       2,799,824       2,680,793  

Common stock

    594,493       594,493       594,493       594,493       594,493  

Per share data:

         

Net income (loss) attributable to NHI shareholders—basic

  ¥ 61.66     ¥ 36.53     ¥ 67.29     ¥ 63.13     ¥ (29.90

Net income (loss) attributable to NHI shareholders—diluted

    60.03       35.52       65.65       61.88       (29.92

Total NHI shareholders’ equity(2)

    752.40       748.32       790.70       810.31       794.69  

Cash dividends(2)

    19.00       13.00       20.00       20.00       6.00  

Cash dividends in USD(3)

  $ 0.16     $ 0.12     $ 0.18     $ 0.19     $ 0.05  

Weighted average number of shares outstanding (in thousands)(4)

    3,645,515       3,600,701       3,560,776       3,474,593       3,359,565  

Return on equity(5):

    8.6     4.9     8.7     7.9     (3.7 %) 

 

(1)

Due to the changes in our accounting policy which Nomura adopted on April 1, 2018, certain reclassifications of previously reported amounts have been made to conform to the current year presentation. Please refer to Note 1 Summary of accounting policies” for further details.

(2)

Calculated using the number of shares outstanding at year end.

(3)

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.

(4)

The number shown is used to calculate basic earnings per share.

(5)

Calculated as net income (loss) attributable to NHI shareholders divided by total NHI shareholders’ equity.

B. Capitalization and Indebtedness.

Not applicable.

C. Reasons for the Offer and Use of Proceeds.

Not applicable.

 

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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.

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 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. Furthermore, unfavorable demographic trends, 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 retail 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.

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 exemplified by decreased returns for fixed income products in the prolonged low interest rate environment in Japan.

Brexit may adversely affect our business on various fronts

As a result of the national referendum took place on June 23, 2016, the United Kingdom (“U.K.”) is due to leave the European Union (“EU”) (“Brexit”) sometime in the near future. Although, under the current agreement between the U.K. and the EU in accordance with the Article 50(3) of the Treaty on the European Union, Brexit is required to occur by the end of October 2019 at the latest, the final timing of Brexit is still uncertain, and Brexit may not occur at all. Moreover, if Brexit does occur, the final form and substance of Brexit remain undecided, and many other uncertainties still remain.

Because we conduct a substantial level of business throughout Europe where London is our regional hub, Brexit may adversely affect our business on various fronts. Currently, our regulated activities in European region are carried out mainly through Nomura International plc (“NIP”), our broker-dealer arm established in London. NIP has access to the entire European Economic Area (“EEA”) through providing cross-border services under the relevant EU single market legislation known as “passporting rights”. If Brexit happens without any agreement between the U.K. and the EU in respect of continuation of access for financial services, including passporting rights, NIP may lose access to the EEA and, as a result, our revenue and profitability from business

 

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in the European region may be adversely affected. This situation would also similarly apply to other group entities operating in the European region.

In order to address such potential impact on our business, we have established a new broker-dealer entity, Nomura Financial Products Europe GmbH (“NFPE”) as a licensed broker-dealer in the Federal Republic of Germany. As a German entity, NFPE is eligible for passporting rights after Brexit, if it occurs. However, as discussed below, a number of uncertainties affecting our business in the European region will remain regardless of establishment of NFPE.

For example, the form and substance of the final agreement over Brexit between the U.K. and the EU may adversely affect our business in the European region. Moreover, if no agreement is reached, Brexit may occur in a disorderly manner, which may adversely affect financial stability both in the U.K. and the wider European region. Any market turmoil and increased volatility due to a disorderly Brexit may adversely affect our business, with potentially severe liquidity and operational pressures on our financial position, particularly in the short term. If the U.K. and EU agree on a longer transition period for maintaining the status quo until final agreement for a future relationship becomes effective, this may affect the behavior of market participants and their potential response to Brexit. For example, market participants may postpone or cancel transactions or other activities that they would otherwise engage in, which may adversely affect our revenues and profitability.

Depending on the content of any future agreement between the U.K. and the EU, the wider financial system and regulatory and supervisory regime in European region may also be substantially changed, which could adversely affect our business as well. Euro-denominated financial transactions in the market, which are currently centralized in London, in particular may be affected by any regulatory regime emerging after Brexit in terms of the physical location for financial market infrastructure, liquidity provision and pricing. Operating conditions for financial institutions and financial market infrastructures may also become more stringent for all market participants depending on the content of any such new regulatory or supervisory regime.

These potential changes in the relevant regulatory or supervisory regimes in the wider financial system may accelerate fragmentation of the financial markets and, as a result, we may be adversely affected due to increasing operating costs, which could impact on our profitability. Such increased operating costs may result from a number of factors, including the introduction or modification of regulatory requirements such as regulatory capital, liquidity, governance, risk management control and overall entity structure planning.

Overall, Brexit poses a high level of potentially prolonged uncertainties both politically and economically, mainly in the U.K. and the EU. There may also be certain extraterritorial effects in markets outside of the region. These uncertainties, together with other potential developments such as rising trade tensions, may add further downward pressure to the world economic growth and global financial stability and, as a result, we 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 may adversely affect our business.

Our brokerage and asset management revenues may decline

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 business, in most cases, we charge fees and commissions 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 withdrawals or reduce the amount of new investments in these portfolios, and would reduce the revenue we receive from our asset management business. Also, any changes in our clients’ investment preference on their asset portfolios, including shifting investment assets to stable assets such as deposits and/or passive funds, which bring relatively low commission rates, may reduce our revenue as well.

 

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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 there are financial and market changes unfavorable to our investment banking business and our clients.

Our electronic trading business revenues may decline

Electronic trading is essential for our business in order to execute trades faster with fewer resources. Utilizing these systems allows us to provide an efficient execution platform and on-line content and tools to our clients via exchanges or other automated trading facilities. Revenue from our electronic trading, which includes trading commissions and bid-offer spreads from these services, are directly correlated with the number and size of the transactions in which we participate and would therefore decrease if there are financial market or economic changes that would cause our clients to trade less frequently or in a smaller amounts. In addition, the use of electronic trading has increased across capital markets products and has put pressure on trading commissions and bid-offer spreads in our industry due to the increased competition of our electronic trading business. Although trade volumes may increase due to the availability of electronic trading, this may not be sufficient to offset margin erosion in our execution business, leading to a potential decline in revenue generated from this business. We continue to invest in developing technologies to provide an efficient trading platform; however, we may fail to maximize returns on these investments due to this increased pressure on lowering margins.

We may incur significant losses from our trading and investment activities

We maintain large 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, reverse repurchase agreements and real estate. Fluctuations in the markets where these assets are traded can adversely affect the value of these assets. To the extent that we own assets, or have long positions, a market downturn could result in losses if the value of these long positions decreases. Furthermore, to the extent that we have not kept assets and sold them, or have short positions, an upturn in prices of the assets could expose us to potentially significant losses. 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 are fluctuated 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, higher volatility, while it can increase trading volumes and spreads, also increases risk as measured by Value-at-Risk (“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.

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.

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

 

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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 a one-notch and two-notch downgrade of our credit ratings on March 31, 2019, absent other changes, we estimate that the aggregate fair value of assets required to be posted as additional collateral in connection with our derivative contracts would have been approximately ¥6.2 billion and ¥51.4 billion, respectively.

Transition from IBORs to alternative rate indices may adversely affect our business

We trade interest rate swaps and other derivatives and underwrite bonds and loans which refer to Interbank Offered Rates (“IBORs”) such as the London Interbank Offered Rate (“LIBOR”). Following the LIBOR manipulation scandal in 2012, the Chief Executive of the U.K. Financial Conduct Authority (“FCA”), which regulates LIBOR, announced on July 27, 2017 that FCA will no longer persuade or compel banks to submit rates for the calculation of LIBOR after 2021, and indicated that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021. Since then, the Financial Stability Board (“FSB”) has observed structural declines in liquidity of the interbank short term funding including IBORs. The regulators and the finance industry have responded and are discussing the development of alternatives to IBORs and how to transfer existing contracts and products to such alternative rates. Some IBORs are expected to be replaced by the end of 2021. Such transfers will involve the development of new calculation methods for alternative rates, revisions to relevant contracts and modifications to the application of accounting principles to the relevant transactions. These changes could require us to incur additional costs and subject us to risks associated with systematic reform, operational application and client disclosure, or adversely impact the pricing, volatility and liquidity of financial products including derivatives, bonds and loans which refer IBORs as floating rate. Therefore, our business, financial condition and results of operations could be impacted materially adversely and/or we could be subject to disputes, litigation or other actions with counterparties or relative participants.

We have established a firmwide IBOR transition program to manage the transition away from these IBORs. However, the regulatory and industry responses to these developments are the subject of significant uncertainty, and we may not be successful in managing this transition without potentially serious disruption to our business.

Holding large and concentrated positions of securities and other assets may expose us to large losses

Holding large and concentrated positions of certain securities can expose us to large losses in our businesses such as market-making, block trading, underwriting, asset securitization, acquiring newly-issued convertible debt securities through third-party allotment or providing business solutions to meet clients’ needs. We have committed substantial amounts of capital to these businesses. This often requires us to take large positions in the securities of a particular issuer or issuers in a particular industry, country or region. We generally have higher exposure to those issuers engaged in financial services businesses, including commercial banks, broker-dealers, clearing houses, exchanges and investment companies. There may also be cases where we hold relatively large amounts of securities by issuers in particular countries or regions due to the business we conduct with our clients or our counterparties. In addition, we may incur losses due to market fluctuations on asset-backed securities such as residential mortgage-backed securities (“RMBS”) and commercial mortgage-backed securities (“CMBS”).

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 increasing regulation or other reasons. As a result, it may be difficult for us to sell, hedge or value such assets which we hold. Also, in the event that a market fails in pricing such assets, it will be difficult to estimate their value. If we cannot properly close out or hedge our associated positions in a timely manner or in full, particularly with respect

 

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to Over-The-Counter (“OTC”) derivatives, we may incur substantial losses. Further, if the liquidity of a market significantly decreases and the market may become unable to price financial instruments held by us, this could lead to unanticipated losses.

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. 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.

Our risk management policies and procedures may not be fully effective in managing market risk

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 behavior of market data, the movement of each data in future financial market 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 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, up-to-date 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.

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 market downturn, our clients and counterparties could incur substantial losses of their own, thereby weakening their financial condition and, as a result, increasing our credit risk to them.

We may have to recognize impairment charges 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. We also possess tangible and intangible assets other than those stated above.

We may have to recognize impairment charges, as well as other losses associated with subsequent transactions, with regard to the amount of goodwill, tangible and intangible assets and, if recognized, such changes 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.

 

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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:

We may be unable to access unsecured or secured funding

We continuously access unsecured funding from issuance of securities in the short-term credit markets and debt capital markets as well as bank borrowings to finance our day-to-day operations, 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:

 

   

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.

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 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.

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.

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. 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.

Event risk may cause losses in our trading and investment assets as well as market and liquidity risk

Event risk refers to potential losses we may suffer through unpredictable events that cause large unexpected market price movements such as natural or man-made disasters, epidemics, acts of terrorism, armed conflicts or

 

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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, and sudden and unexpected developments in global trade or security policies such as tensions between the United States and China in 2018 and 2019 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 make 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 issuers of our trading and investment assets.

We may be exposed to losses when third parties that are indebted to us do not perform their obligations

Our counterparties are from time to time indebted 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.

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 by the counterparty, such as financial institutions and hedge funds which are counterparties to credit default swaps or systems failure by clearing agents, exchanges, clearing houses or other financial infrastructure.

Issues related to third party credit risk may include the following:

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.

There can be no assurance as to the accuracy of the information about, or the sufficiency of the collateral we use in managing, our credit risk

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 to detect, such as account-rigging and fraud. We may also fail to receive full

 

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information with respect to the risks of a counterparty. 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.

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.

The financial services industry faces intense competition

Our businesses are intensely competitive, and are expected to remain so. We compete on the basis of a number of factors, including transaction execution capability, our products and services, innovation, reputation and price. We have experienced intense price competition, particularly in brokerage, investment banking and other businesses.

Competition with commercial banks, commercial bank-owned securities subsidiaries, non-Japanese firms and online securities firms in the Japanese market is increasing

Since the late 1990s, the financial services sector in Japan has undergone deregulation. In accordance with the amendments to the Securities and Exchange Law of Japan (which has been renamed as the Financial Instruments and Exchange Act of Japan (“FIEA”) since September 30, 2007), effective from December 1, 2004, banks and certain other financial institutions became able to enter into the securities brokerage business. In addition, in accordance with the amendments to the FIEA effective from June 1, 2009, firewalls between commercial banks and securities firms were deregulated, and our competitors will be able to cooperate more closely with their affiliated commercial banks. 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, 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 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.

Increased consolidation, business alliance and cooperation in the financial services groups 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. Recently, these large financial services groups have been further developing business linkage within their respective groups in order to provide comprehensive financial services to clients. These financial services groups continue to offer 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 market share. In addition, the financial services industry has seen collaboration beyond the borders of businesses and industries, such as alliances between commercial banks and securities companies outside of framework of existing corporate groups and recent alliances with non-financial companies including emerging companies. Our competitiveness may be adversely affected if our competitors are able to expand their businesses and improve their profitability through such business alliances.

 

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Our global business strategies have not resulted in the anticipated outcome to date, and we may not be able to successfully rebuild them

We continue to believe there are significant opportunities in the international markets, but 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 important non-Japanese markets, including the U.S., Europe and Asia. Under such competitive environment, as a means to bolster our international operations, we acquired certain Lehman Brothers operations in Europe, the Middle East and Asia in 2008 and we have invested significant management resources to maintain and develop our operations in these regions and the U.S. 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 central banks of each country, resulting in decline in whole market liquidity. In light of this challenging business environment, we have endeavored to reallocate our management resources to optimize our global operations and thereby improve our profitability. However, due in part to the challenging environment facing these businesses, the bulk of which are within our Wholesale segment, performance has been weaker than expected, and we recognized an impairment loss of ¥81,372 million in the fiscal year ended March 31, 2019 attributable to the Wholesale segment. If we are not able to successfully restructure and revitalize these businesses, included as described below, our global businesses, financial condition and results of operations may be further materially and adversely affected.

On April 4, 2019, we announced our plans to rebuild our global business platform, under which we aim to simplify our operating model, transform our business portfolio and pivot towards client businesses and growth areas. However, we may be unable to successfully execute this strategy. Even if we are able to successfully execute this strategy, we may be required to incur greater expenses than expected, or to commit greater financial, management and other resources to this strategy than expected, which could adversely affect our business and results of operations. Moreover, the assumptions and expectations upon which this strategy is based may not be correct, which could lead to us realizing fewer benefits than expected or could even harm our business and results of operations overall. For example, we may not correctly select business lines to streamline, which could lead to us missing or otherwise being unable to take advantage of a potential opportunity. Furthermore, to the extent we reduce compensation or headcount as part of this strategy, our ability to attract and retain the employees needed to successfully run our businesses could be adversely affected. We may also be unsuccessful in designing a streamlined management structure, which could harm our ability to properly control or supervise our many businesses across the world.

Our business is subject to various operational risks

We classify and define operational risk as the risk of loss resulting from inadequate or failed internal processes, personnel, and systems or from external events. It excludes strategic risk (the risk of loss as a result of poor strategic business decisions), but includes the risk of breach of legal and regulatory requirements, and the risk of damage to our reputation if caused by an operational risk.

 

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Operational risk is inherent in all our products, activities, processes and systems which therefore can potentially have a direct financial impact on us or an indirect financial impact through a disruption to our business, regulatory sanctions, loss of clients, reputational damage or damage to the health and safety of our management and employees. While we have established a robust framework to manage and mitigate the impact of operational risks within us, prevention of the following key specific types of key operational risks occurring remains challenging:

 

Event Category    Definition
Internal Fraud    Intentional breach of laws, rules, regulations or internal policies and procedures.
   
Mis-selling    Offering of products and services which are not commensurate with the client’s knowledge, experience, asset status and investment purpose as well as his/her ability to make judgment regarding risk management, or failure to provide sufficient information about the risks associated with the products and services offered.
   
Regulatory non- Compliance    Violation of financial and other applicable laws, rules or regulations and internal rules governing the firm’s business activities and personnel.
   
Information Management Failure    Activity which may lead to leakage or damage of the firm’s data including client and sensitive information, or failure to maintain a sufficient control environment to prevent such events.
   
Cyber Attack    Unauthorized intrusion, theft, modification and destruction of data, failure or malfunction of information systems and execution of illegal computer programs, committed via the Internet through malicious use of information communication networks and information systems.
   
System Outages    Significant system defects, including system outages or malfunction.
   
Business Continuity Management Failure    Failure to maintain effective business continuity due to insufficient measures and preparations against major natural or man-made disaster.
   
Outsourcing Management Failure    Failure to maintain effective management of outsourced processes including continuous monitoring by the owner of the process and oversight from control functions.

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 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 non-public information relating to us or our clients, such as insider trading 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.

 

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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”). 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 these our providing 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. However, our remediation plan may not be successful in preventing similar future incidents due to misconduct by third parties and other factors. Furthermore, the extent of the damage by such business improvement order to our reputation and our business is not certain at this point.

Although we have precautions in place to detect and prevent such misconduct in the future, the measures we have implemented or may implement may not be effective in all cases, and we may not always be able to detect or deter misconduct by an employee, director or officer. If any administrative or judicial sanction is issued against us as a result of such misconduct, 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.

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 our day-to-day business operations, such fraud or any other misconduct may be difficult to prevent or detect.

We may not be able to recover the financial losses caused by such activities and our reputation may also be damaged by such activities.

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, where 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. While we have extensive internal procedures and controls designed to identify and address conflicts of interest, a 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. In addition, conflicts of interest could give rise to regulatory actions or litigation.

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 financial effect on us or cause reputational harm to us, which in turn could adversely affect our business prospects, financial

 

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condition and results of operations. Also, material changes in regulations applicable to us or to the markets in which we operate could adversely affect our business. See Note 21 “Commitments, contingencies and guarantees” in 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.

Our exposure to legal liability is significant

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.

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. 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.

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 million. Although we have policies in place to prevent violations of such laws and regulations, we may not always be able to prevent 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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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 “Business Overview—Regulation” in this annual report for more information about such regulations.

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 the 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 a D-SIB and imposed a surcharge of 0.5% on our required capital ratio after March 2016 with 3-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 Japanese G-SIBs but also to Japanese D-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 will be subject to the TLAC requirements in Japan from March 31, 2021 although Nomura is not identified as a 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.

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 16 “Income taxes” in our consolidated financial statements included in this annual report for further information regarding the deferred tax assets that we currently recognize.

Unauthorized disclosure 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 or disclosed.

Although we exercise care to protect the confidentiality of personal information and take steps to safeguard such information in compliance with applicable laws, rules and regulations, were any material unauthorized

 

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disclosure of personal information to occur, our business could be adversely affected. For example, we could be subject to administrative fines 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 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. Any damage to our reputation caused by such unauthorized disclosure 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.

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 may 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. 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 foreign non-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 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. 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. The investigation is still ongoing and the extent and potential magnitude of this incident, including whether any client information has been impacted, have yet to be determined. As a result of this incident, we may suffer financial loss through reputational damage, legal liability and enforcement actions and through the cost of additional resources not only to remediate this incident but also to enhance and strengthen the cyber security of other Nomura group companies, all of which could negatively affect our financial conditions and results of operations.

Natural disaster, terrorism, military dispute and infectious disease could adversely affect our business

We have developed a contingency plan for addressing unexpected situations. However, disaster, terrorism, military dispute or infectious disease afflicting our management and employees could exceed the assumptions of our plan, and could adversely affect our business.

The Company is a holding company and depends on payments from subsidiaries

The Company heavily depends on dividends, distributions and other payments from subsidiaries to make payments on the Company’s obligations. Regulatory and other legal restrictions, such as those under the Companies Act, may limit the Company’s ability to transfer funds freely, either to or from the Company’s subsidiaries. In particular, many of the Company’s subsidiaries, including the Company’s broker-dealer subsidiaries, are subject to laws and regulations, including regulatory capital requirements, that authorize

 

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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, NSC, Nomura Securities International, Inc., Nomura International plc and Nomura International (Hong Kong) Limited, our main broker-dealer subsidiaries, are subject to regulatory capital requirements that could limit the transfer of funds to the Company. These laws and regulations may hinder the Company’s ability to access funds needed to make payments on the Company’s obligations.

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 including private equity investments and non-trading debt securities. Under U.S. GAAP, depending on market conditions, we may recognize significant unrealized gains or losses on our investments in equity securities and debt securities, which could have an adverse impact on our financial condition and results of operations. Depending on the market conditions, we may also not be able to dispose of these equity securities and debt securities when we would like to do so, as quickly as we may wish or at the desired price.

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. Under U.S. GAAP, if there is a decline in the fair value, i.e., the market price, of the shares we hold 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 financial condition and results of operations.

We may face an outflow of clients’ assets due to losses of cash reserve funds or debt securities we offer

We offer many types of products to meet various needs of our clients with different risk profiles.

Cash reserve funds, such as money market funds and money reserve funds are categorized as low risk financial products. As a result of a sudden rise in interest rates, such cash reserve funds may fall below par value due to losses resulting from price decreases of debt securities in the portfolio, defaults of debt securities in the portfolio or charges of negative interest. If we determine that a stable return cannot be achieved from the investment performance of cash reserve funds, we may accelerate the redemption of, or impose a deposit limit on, such cash reserve funds. For example, Nomura Asset Management Co., Ltd., the Company’s subsidiary, ended its operation of money market funds in late August 2016 and executed an accelerated redemption of such funds in September 2016.

In addition, debt securities that we offer may default or experience delays in the payment of interest and/or principal.

Such losses, early redemption or deposit limit for the products we offer 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.

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

 

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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.

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.

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 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.

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.

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.

 

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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.

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, 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.

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.

Since the end of World War II, we have played a leading role in most major developments in the Japanese securities market. These developments include the resumption of the investment trust business in the 1950s, the introduction of public stock offerings by Japanese companies in the 1960s, the development of the over-the-counter bond market in the 1970s, the introduction of new types of investment trusts such as the medium-term Japanese government bond investment trust in the 1980s, and the growth of the corporate bond and initial public offering markets in the 1990s.

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

 

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continues to be listed on the Tokyo Stock Exchange and other stock exchanges on which it was previously listed. 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 is 9-1, Nihonbashi 1-chome, Chuo-ku, Tokyo 103-8645, 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.

Our clients include individuals, corporations, financial institutions, governments and governmental agencies.

Our business consists of Retail, Asset Management, Wholesale and Merchant Banking which are described in further detail below. See also Note 22 “Segment and geographic information” in our consolidated financial statements included in this annual report.

Corporate Goals and Principles

The 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 our shareholders and clients.

As “Asia’s global investment bank,” Nomura will provide high value-adding solutions to clients globally, and recognizing its wider social responsibility, Nomura will continue to contribute to the economic growth and development of society.

To enhance its corporate value, Nomura places significance on earnings per share (“EPS”) and will seek to maintain sustained improvement of management’s target.

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

 

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nationwide branches of Nomura Securities Co., Ltd. (“NSC”). The total number of local branches, including our head office, was 156 as of the end of March 2019. However, we are planning consolidation of some branches in metropolitan areas over the next few years. We offer investment consultation services to meet the medium and long-term needs of our clients. We discuss retail client assets in “Retail Client Assets” under Item 5.A of this annual report.

We continue to focus on delivering top-quality solutions including our broad range of products and services through face-to-face meetings, online and call center channels, so that Nomura Group can sustainably be a trusted partner to our clients.

Asset Management

We conduct our asset management business, which consists of the development and management of investment trusts and investment advisory services, primarily through Nomura Asset Management Co., Ltd (“NAM”). NAM is the largest asset management company in Japan in terms of assets under management in investment trusts as of March 31, 2019. In Japan, our challenge is to shift individual financial assets from saving products into investment products to create business opportunities. In order to make these opportunities available, NAM manages various investment trusts, ranging from low risk/low return products to high risk/high return products, and develops new products to respond to various investor needs. Investment trusts are distributed to investors through NSC as well as through financial institutions such as securities companies (including those outside our group) and banks. Investment trusts are also held in defined contribution pension plans. We also provide investment advisory services to public pension funds, private pension funds, governments and their agencies, central banks and institutional investors globally.

Wholesale

The Wholesale Division consists of Global Markets and Investment Banking, providing our corporate and institutional clients with timely, high value-adding products and services tailored to their needs. In April 2018 we brought together key Global Markets and Investment Banking functions under the integrated Client Financing and Solutions (CFS) structure in order to better meet the strong, growing demand from our clients for a broad range of financing, capital and hedging solutions.

Global Markets

Global Markets provides research, sales, trading, agency execution, and market-making of fixed income and equity-related products.

Our global fixed income offerings include, among other products, government securities, interest rate derivatives, investment-grade and high-yield corporate debt securities, credit derivatives, G-10 and emerging markets foreign exchange, asset-backed securities and mortgage-related products, in over-the-counter (“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.

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. We are also a member of various exchanges around the world, with leading positions on Tokyo Stock Exchange.

These product offerings are underpinned by 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.

 

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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. We underwrite offerings of a wide range of securities and other financial instruments, including various classes of shares, convertible and exchangeable securities, investment grade and high yield debt, sovereign and emerging market debt, structured securities and other securities in the Asian, European, U.S. and other financial markets. We also arrange private placements and engage in other capital raising activities.

Financial Advisory & Solutions Services. We provide financial advisory services on business transactions including mergers and acquisitions, divestitures, spin-offs, capital structuring, corporate defense activities, leveraged buyouts and risk solutions. Our involvement in reorganizations and other corporate restructurings related to industry consolidation enhances our opportunities to offer clients other advisory and investment banking services.

We leverage the connectivity between our Retail, Asset Management, Wholesale and Merchant Banking Divisions to offer various financial instruments such as equity and debt securities, investment trusts and variable annuity insurance products, for the short, medium, and long-term, with differing risk levels. We also endeavor to deliver Nomura’s proprietary insights to clients through various media such as our investment reports and internet-based trading services.

Merchant Banking

Our Merchant Banking Division have embarked on principal business to primarily provide equity to transactions such as business reorganization and revitalization, business succession as well as management buyout. We will, under proper management of risk, focus on support for improving the enterprise value of portfolio companies, and will contribute to expansion of the private equity market.

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 is 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 is 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 proactively seek and implement innovative financial technology to improve the operations of our business.

In our Retail Division, we continually invest and enhance our core system and related systems to improve efficiency on business operation. We are also continuously working on improving our internet-based and smartphone platforms.

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

 

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direct market access and algorithmic trading. In order to ensure the support level of Wholesale operations, we will continue to maintain utilization of our offshore service entities in India and enhance our regional support based capabilities.

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 developments both within and between Japan, the U.S., Europe and other major industrialized and developing countries and regions.

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.

There has also been substantial consolidation and convergence among financial institutions, both within Japan and globally and this trend accelerated further in recent years 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.

 

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Regulation

Japan

Regulation of the Securities Industry and Securities Companies. Pursuant to the FIEA, the Prime Minister of Japan has the authority to supervise and regulate the securities industry and securities companies, and delegates 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 conduct day-to-day monitoring 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.

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. Securities companies are not permitted to conduct banking or other financial services directly, except for those which are registered as money lenders and engaged in money lending business under the Money Lending Business Act or which hold permission to act as bank agents and conduct banking agency activities under the Banking Law. Among the subsidiaries of the Company in Japan, NSC is a securities company that is also registered as a money lender and holds permission to act as a bank agent. Another subsidiary of the Company, The Nomura Trust & Banking holds a banking license and trust business license.

Financial Instruments and Exchange Act. The FIEA widely regulates financial products and services in Japan under the defined terms “financial instruments” and “financial instruments trading business”. It regulates 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

 

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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.

Regulatory Changes. On April 16, 2013, a bill was submitted to the Diet of Japan to amend the FIEA and the Deposit Insurance Act and was passed on June 12, 2013. A part of the amendment includes establishing “Orderly Resolution Regime for Financial Institutions” to prevent a financial crisis that may spread across financial markets and may seriously impact the real economy. 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. The amendment became effective on March 6, 2014.

Regulatory Changes. In April 2016, the FSA published its policy describing its approach and framework for the introduction of the TLAC requirements in Japan applicable to Japanese G-SIBs and, in April 2018, released revisions to such policy that extended the coverage of the TLAC requirements in Japan not only to Japanese G-SIBs but also to Japanese D-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 a G-SIB as of the date of this annual report, Nomura is subject to the TLAC regulations in Japan, and 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.

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, the New York Stock Exchange, the Financial Industry Regulatory Authority (“FINRA”) (a private organization with quasi-governmental authority and a regulator for all securities companies doing business in the U.S.), the National Futures Association (“NFA”) (a self-regulatory organization for the U.S. derivatives industry) in the U.S.; and by the Prudential Regulation Authority (“U.K. PRA”,) and the Financial Conduct Authority (“U.K. FCA”) in the U.K. 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.

Regulatory Changes. In response to the financial markets crisis, governments and regulatory authorities in various jurisdictions have made and continue to make numerous proposals to reform the regulatory framework for, or impose a tax or levy upon, the financial services industry to enhance its resilience against future crises, contribute to the relevant economy generally or for other purposes. In July 2010, the U.S. enacted the Dodd-Frank Act and a multi-agency rulemaking process. The rulemakings include the following: (i) create a tighter regulatory framework for OTC derivatives to promote transparency and impose conduct rules in that marketplace; (ii) establish a process for designating nonbank financial firms as Systemically Important Financial Institutions (“SIFIs”), subject to increased (and sometimes new) prudential oversight including early remediation, capital standards, resolution authority and new regulatory fees; (iii) prohibit material conflicts of interest between firms 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

 

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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 for non-cleared derivatives, 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 some non-U.S. Nomura entities.

Other aspects of the Dodd-Frank Act and related rulemakings include provisions that (i) prohibit deposit-taking banks and their affiliates from engaging in proprietary trading and limit their ability to make investments in hedge funds and private equity funds (the so-called “Volcker Rule”); (ii) empower regulators to liquidate failing nonbank financial companies that are systemically important; (iii) provide for new systemic risk oversight and increased capital requirements for both bank and non-bank SIFIs; (iv) provide for a broader regulatory oversight of hedge funds; and (v) establish new regulations regarding the role of credit rating agencies, investment advisors and others. The Economic Growth, Regulatory Relief, and Consumer Protection Act, which was enacted in May 2018, preserves the fundamental elements of the post-Dodd-Frank regulatory framework and, as to bank regulatory requirements, primarily focuses on revising certain aspects of the U.S. financial regulatory regime for small and medium-sized banking organizations. In connection with the implementation of this Act, the U.S. federal bank agencies have released proposals to tailor the application of prudential requirements, including capital and liquidity requirements, for large U.S. banking organizations and foreign banking organizations with significant U.S. activities. The CFTC has largely finalized its rulemakings that implement the OTC derivatives market reform aspects of the Dodd-Frank Act. Among other items, the CFTC Dodd-Frank rules now impose reporting, clearing, margin and trade execution requirements that will apply, to varying degrees, to commodity derivative transactions entered into by all U.S. and many non-U.S. Nomura entities. These rules also require swap dealers that exceed a de minimis threshold of swap dealing activity to be registered with the CFTC and subject those registered swap dealers to internal and external conduct requirements. The U.S. derivatives rules are now being applied extraterritorially and are impacting some non-U.S. Nomura entities. The full extent of the extraterritorial application of the CFTC’s Dodd-Frank rules continues to evolve as the CFTC updates its own guidance, and these changes may result in more or fewer aspects of the rules impacting Nomura’s entities. Separately, on March 5, 2019, the NFA issued rules that require certain Associated Persons (“APs”) of NFA member firms (e.g. swap dealers and Futures Commission Merchants) to satisfy certain swaps proficiency requirements to ensure that APs engaged in swaps activities meet a minimum proficiency standard that tests both their market knowledge and their knowledge of regulatory requirements relating to swaps activities. Swap dealer APs outside the U.S. that only transact swaps with non-U.S. persons or non-U.S. branches of U.S. swap dealers are exempt from the requirements. The compliance date for in-scope APs to complete the proficiency requirements is January 31, 2021. In addition, Title VII of the Dodd-Frank Act gives the SEC regulatory authority over “security-based swaps” which are defined under the act as swaps based on a single security or loan or a narrow-based group or index of securities. Security-based swaps are included within the definition of “security” under the U.S. Securities and Exchange Act of 1934 and the U.S. Securities Act of 1933. The SEC continues to issue final rules and interpretive guidance addressing cross-border security-based swap activities. On June 25, 2014, the SEC initially finalized a portion of its cross-border rules, namely key foundational definitions and registration calculations that will become operative once the SEC sets a timeframe for the security-based swap dealer registration process to begin. Since then, the SEC has issued a series of final rules that will apply certain Dodd-Frank Act requirements to security-based swaps between two non-U.S. person counterparties when the security-based swaps are arranged, negotiated or executed using personnel or personnel of agents located in the U.S. On February 10, 2016, the SEC issued final rules that require a non-U.S. person that uses personnel or personnel of agents located in the U.S. in connection with security-based swap dealing activity to include such security-based swaps in its security-based swap dealer registration de minimis calculation. On April 14, 2016, the SEC issued final rules that require a non-U.S. security-based swap dealer to comply with external business conduct standards rules when facing a non-U.S. person counterparty if the non-U.S. security-based swap dealer uses personnel or personnel of agents located in the U.S. to arrange, negotiate or execute the security-based swap. On July 14, 2016 the SEC issued final rules that subject a security-based swap between a non-U.S. security-based swap dealer and a non-U.S. person

 

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counterparty to public dissemination pursuant to SEC rules if the non-U.S. swap dealer uses personnel or personnel of agents located in the U.S. to arrange, negotiate or execute the security-based swap. On October 11, 2018, the SEC reopened the comment period on capital, margin and segregation requirements for security-based swap dealers and major security-based swap participants and capital requirements for broker-dealers. Finally, on May 10, 2019, the SEC issued proposed guidance and rule amendments addressing the cross-border application of certain security-based swap requirements. Specifically, the proposal provides guidance on the circumstances under which providing “market color” will not constitute “arranging” or “negotiating” a security-based swap for purposes of the of the SEC rules, guidance relating to the opinion of counsel requirement applicable to non-U.S. firms seeking to register as a security-based swap dealer, and relief from certain security-based swap dealer AP requirements. In addition, the SEC proposed two alternative proposals for a conditional exception from the de minimis dealer registration calculation for security-based swap transactions entered into between non-U.S. persons that are arranged or negotiated by personnel located in the U.S. While the SEC did not propose to change the application of its external business conduct, public dissemination or regulatory reporting rules to swaps between non-U.S. persons that are arranged, negotiated, or executed by personnel or personnel of agents located in the U.S., the SEC asked questions and invited the public to comment on whether it should propose changes to those requirements. Once final and effective, these cross-border rules may impact some non-U.S. Nomura entities. The exact details of the Dodd-Frank Act implementation and ultimate impact on Nomura’s operations will depend on the form and substance of the final regulations adopted by various governmental agencies and oversight boards. In addition to the rulemakings required by the Dodd-Frank Act, the SEC is considering other rulemakings that will impact Nomura’s U.S. entities. While these rules have not been formally proposed, they have been publicly reported in the U.S. Office of Management and Budget’s (“OMB”) “Current Regulatory Plan and Unified Agenda of Regulatory and Deregulatory Actions.” The SEC’s Division of Trading and Markets has announced that it is considering recommending that the SEC propose an amendment to its net capital rule that would prohibit a broker-dealer that carries customer accounts from having a ratio of total assets to regulatory capital in excess of a 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 January 29, 2019, FINRA filed a rule change with the SEC again extending the effective date of the Rule 4210 margin requirements to March 25, 2020, citing the need to consider potential revisions to Rule 4210 in consultation with market participants and other regulators. 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 CFTC 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.

On February 3, 2017, U.S. President Donald J. Trump signed Executive Order 13772 outlining core principles to regulate the U.S. financial system. The order directed the Secretary of the Treasury to consult with heads of member agencies of the Financial Stability Oversight Council and report within 120 days of the date of the order (and periodically thereafter) on the extent to which existing laws, treaties, regulations, guidance, reporting and recordkeeping requirements and other government policies promote the core principles. U.S. regulatory agencies may change financial regulations through administrative procedures and rulemakings, supervisory guidance or no-action relief as the result of recommendations by the Treasury Secretary in

 

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accordance with the core principles of the executive order. These may have a material impact on Nomura’s business.

The core principles are as follows: (i) empower Americans to make independent financial decisions and informed choices in the marketplace, save for retirement, and build individual wealth; (ii) prevent taxpayer-funded bailouts; (iii) foster economic growth and vibrant financial markets through more rigorous regulatory impact analysis that addresses systemic risk and market failures, such as moral hazard and information asymmetry; (iv) enable American companies to be competitive with foreign firms in domestic and foreign markets; (v) advance American interests in international financial regulatory negotiations and meetings; (vi) make regulation efficient, effective, and appropriately tailored; and (vii) restore public accountability within Federal financial regulatory agencies and rationalize the Federal financial regulatory framework. The Treasury Department divided its review of the financial system into a series of reports. The reports, all of which have been issued, cover the following subjects: (1) the depository system, covering banks, savings associations, and credit unions of all sizes, types and regulatory charters: (2) capital markets: covering debt, equity, commodities and derivatives markets, central clearing and other operational functions; (3) the asset management and insurance industries, and retail and institutional investment products and vehicles; and (4) non-bank financial institutions, financial technology and financial innovation. In addition, President Trump issued two Presidential Memoranda to the Secretary of the Treasury. One calls for a review of the Orderly Liquidation Authority (“OLA”) established under Title II of the Dodd-Frank Act, which the Treasury Department released in February 2018, recommending reforms to the OLA and amendments to the U.S. Bankruptcy Code to make a bankruptcy proceeding a more effective solution method for large financial institutions. The other calls for Treasury to review the process by which the Financial Stability Oversight Council (“FSOC”) determines that a nonbank financial company could pose a threat to the financial stability of the U.S., subjecting such an entity to supervision by the Federal Reserve and enhanced prudential standards and capital requirements. In March 2019, the FSOC proposed to revise its interpretive guidance relating to such designations.

On October 26, 2017, the Division of Investment Management and the Division of Trading and Markets of the SEC issued three related no-action letters to address certain issues raised by cross-border implementation of the European Union’s (“EU”) Markets in Financial Instruments Directive (“MiFID II”), which took effect on January 3, 2018. MiFID II will require the unbundling of execution and research payments made by investment managers to broker-dealers. Under the relief, a broker-dealer may, without becoming subject to the Advisers Act, provide research services to an investment manager that is required, either directly or by contractual obligation, to pay for such research services with MiFID II-compliant research payments. The temporary relief will expire on July 3, 2020, 30 months from MiFID II’s implementation date.

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.

On December 22, 2017, President Donald Trump signed the Tax Cuts and Jobs Act into law. Among other things, the legislation includes the Base Erosion and Anti-Abuse Tax (“BEAT”), effectively a minimum tax on large corporations applied by adding back 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 these rules to address the areas of uncertainty which could also have an adverse impact on the tax liabilities of our U.S. entities.

As part of global efforts to establish a framework to improve authorities’ capacity to resolve failing Systemically Important Financial Institutions (“SIFI”), 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 Financial Stability Board (“FSB”) recommendations on recovery and resolution regimes for financial institutions.

 

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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 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”) for G-SIBs issued by the FSB on November 9, 2015. As 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, although this had negligible impact for Nomura as this was prescribed to be equal to existing regulatory capital requirements. However, from January 1, 2020, Nomura is expected to require internal MREL resources above the regulatory capital requirements for the material subsidiaries in the U.K., identified as NEHS on a sub-consolidated bases and NIP.

On December 18, 2018, Bank of England (BOE) and Prudential Regulation Authority (PRA) jointly published a consultation document on Resolvability Assessment Framework (PRA) MREL became applicable in the U.K. for all U.K. incorporated institutions from January 1, 2019, although this hath firms whose failure would have a significant impact on the U.K. financial system and for certain overseas firms where the BOE would support a home resolution authority in carrying out a cross-border resolution. The proposals for the RAF bring together existing policies such as MREL and Operational Continuity in Resolution (“OCIR”) and new policies proposed in the consultation in order to follow the resolution principles set out by the FSB. Under the consultation, it is expected firms perform an assessment of their preparations for resolution and the BOE to provide a public statement concerning resolvability of each firm. The BOE and PRA are expected to provide a response to the consultation during the course of 2019 and further details are expected on how RAF would apply to overseas firms such as Nomura.

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 (together, “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 whilst 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 on Banking Supervision (“BCBS”) 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 will enter into force in June 2019 with the majority of changes being introduced 2 years later in June 2021.

Amongst 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 the EU will introduce a “CRRIII” package of reforms to implement all outstanding elements of the Basel 3 framework including changes to the calculations for Operational Risk, CVA, Credit Risk and the introduction of an output floor to modelled calculations.

 

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The revised Directive on Markets in Financial Instruments, 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, 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 and national authorities, as well as on position management powers by the ESMA.

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 over-the-counter (“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 for non-financial counterparties (“NFCs”). With a few exceptions, the majority of the provisions in the Regulation enter into force on June 17, 2019.

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 are due to commence their reporting one year later on April 11, 2020. Other reporting counterparties are phased in over the following months, ending with NFCs on January 11, 2021.

In June 2015, the European Parliament and Council to the EU members issued the final version of the Fourth Money Laundering Directive (“4MLD”). All EU member states, including the U.K., had until June 26, 2017 to transpose the requirements of the directive into national law. In February 2016, the EU Commission, in an effort to bolster the fight against terrorist financing, proposed amendments to the 4MLD that would enable the tracing of terrorists through financial movements and disrupt 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

 

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issued by the EU Parliament in July 2016. In September 2017, additional legislation was implemented in the U.K. designed to combat financial crime including 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.

The Fifth Anti-Money Laundering Directive (“5MLD”), came into force in the EU on April 26, 2018 and must be implemented by EU Member States by January 10, 2020. The changes will 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.

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 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 SMCR. Firms are to submit data on Directory individuals in December 2019, and the Directory is expected to go live in March 2020.

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 requirement for data breach notifications to the relevant Regulators. Enforcement of GDPR will be carried out by both national regulators (for the U.K., the Information Commissioner) and the European Commission, and the regulators will also have the new 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 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 LIBOR, gold and foreign exchange benchmarks, and have taken action against individuals for misconduct related to benchmarks. The objectives of the EU Benchmark Regulation 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.

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

 

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cover the new issue process, binary options for the commodities markets and reference price transactions for the fixed income markets. 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.

The U.K. is due to formally leave the EU at the end of October 2019 following the Brexit referendum held in June 2016 and triggering of Article 50 of the Treaty on the Functioning of the European Union to start the formal exit process on March 29, 2017. This is the result of an agreed extension to the previously negotiated March 29, 2019 deadline with the EU, and leaves open the possibility of Brexit occurring before this date, subject to political agreement being achieved. The U.K. remains a full member of the EU until such point, although its influence over rule-making is significantly reduced. The U.K. Government has proposed domestic legislation, the EU (Withdrawal) Bill, to repeal the European Communities Act 1972 that gives primacy to aspects of EU law and transposes current EU-derived law into U.K. legislation to provide continuity. The U.K. financial services sector currently relies on access to the EU single market to conduct business across borders within the EU. Both sides have emphasized the need for continued good access, but the terms of the future relationship still depend on the outcome of political dialogue. In negotiating the terms of withdrawal, the U.K. and EU have agreed in principle draft plans for withdrawal, with proposed underpinnings of a future relationship and a “transition period” that would see the U.K. continue to be an EU member on current terms, without input into the rule-making process, until December 2020. U.K. parliamentary approval has not been obtained for this agreement, with further political developments and negotiation expected to bring about a final resolution.

Subject to further developments, regulatory authorities will continue to consider the appropriate measures required to mitigate risks to the financial system of a disorderly Brexit.

On May 25, 2018, Nomura Financial Products Europe GmbH, a Nomura subsidiary domiciled in Germany, was granted a securities trading license by the German regulator (“BaFin”). Nomura’s plans are well advanced and the license represents a major step towards ensuring that current client and counterparty relationships, and access to Nomura products and services, can continue without disruption after the U.K. leaves the EU.

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 its 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

 

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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 include non-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 FSA Regulatory Notice No. 130; “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.

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 “Consolidated Regulatory Capital Requirements” 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.

 

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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 the G-SIBs including the recovery and resolution plan. The FSB also announced the group of G-SIBs will be updated annually and published by the FSB each November. Since November 2011, we have not been designated as a G-SIB. On the other hand, the FSB and the Basel Committee were asked to work on extending the framework for G-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 for D-SIBs. In December 2015, the FSA identified us as a D-SIB and required additional capital charge of 0.5% after March 2016, with 3-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 (“Rule 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 is subject to Rule 15c3-1 and applies Appendix F. NGFP is required to maintain net capital of $20,000,000 in accordance with the SEC. 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 Rule 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 Rule 15c3-1(a). As of March 31, 2018 and 2019, NSI, NGFP and ILLC were in compliance with relevant regulatory capital related requirements.

In Europe, Nomura Europe Holdings plc (“NEHS”) is subject to consolidated regulatory supervision by the Prudential Regulation Authority (“U.K. PRA”). The regulatory consolidation is produced in accordance with the requirements established under the Capital Requirements Directive and the Capital Requirements Regulation which came into effect on January 1, 2014. Nomura International plc (“NIP”), the most significant of NEHS’ subsidiaries, acts as a securities brokerage and dealing business. NIP is regulated by the U.K. PRA and has minimum capital adequacy requirements imposed on it on a standalone basis. In addition, Nomura Bank International plc (“NBI”), another subsidiary of NEHS, is also regulated by the U.K. PRA on a standalone basis and Nomura Financial Products Europe GmbH (“NFPE”), a Nomura subsidiary domiciled in Germany, is regulated by the German regulator (“BaFin”). As of March 31, 2018 and 2019, NEHS, NIP, NBI and NFPE 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

 

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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 merchant bank with an Asian Currency Unit (“ACU”) license governed 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. As of March 31, 2018 and 2019, NIHK and NSL were in compliance 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

The Nomura Group’s management vision is to enhance its corporate value by deepening society’s trust in the firm and increasing the satisfaction of stakeholders, including shareholders and clients. In order to enhance its corporate value, Nomura responds flexibly to various changes in the business environment, and emphasizes Earnings Per Share (“EPS”) as a management index to achieve stable profit growth, and will seek to maintain sustained improvement in this index.

In order to achieve our management objectives, we have focused on ensuring that profits are recorded by all divisions and regions. But by revising the delegation of powers to regions and business divisions, we shifted to a new business execution structure as from May 2019. We are committed to continuing business model transformation in Japan as well as aiming to improve profitability of our overseas operations under Vision C&C slogan, so that we will be able to build a solid foundation to generate profits even in severe market environments.

We will ensure a flexible and robust response to changes in the global operating environment, such as various international financial regulations, demographic changes, digital evolution, and so forth, while closely monitoring rapidly-changing geopolitical situations, for the purpose of maintaining an appropriate financial standing and achieving an effective use of management resources through improved capital efficiency, etc.

The challenges and strategies in each division are as follows:

 

   

Retail Division

In Retail Division, under the basic philosophy of “placing our clients at the heart of everything we do,” we provided consulting services to become “financial institution a lot of people need” by responding to diversifying needs and wishes. We continue to support elderly clients with their family as we are experiencing aging society and expand client base including next-generation clients for their asset management. Furthermore, we need to concentrate on mass affluent clients for the future. We also focus on providing a broad range of value-added solutions to clients not only through face-to-face consulting services, but also non-face-to-face service such as online investment seminars, call center channels, aiming to earn clients’ trust.

 

   

Asset Management Division

We aim to increase assets under management and expand our client base in (i) our investment trust business, by providing clients with a diverse range of investment opportunities to meet investors’ various needs, and (ii) our investment advisory business, by providing value-added investment services to our clients on a global basis. As a distinctive investment manager with the ability to provide a broad range of products and services, we aim to gain the strong trust of investors worldwide by making continuous efforts to improve investment performance and to meet clients’ various needs.

 

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Wholesale Division

In addition to the needs of our clients becoming increasingly more sophisticated, the Wholesale division also faces challenges presented by the technological revolution; which may result in market changes which fundamentally affect the form of our traditional business. In order to keep step with such changes as well as to ensure our ability to provide our clients with added value, we will continue to seek the enhancement of our connectivity across Global Markets, Investment Banking and other Divisions around the globe as part of our sustained efforts to provide highly sought-after products and services to the markets.

Global Markets has been focusing on delivering differentiated and competitive products and solutions to our clients by leveraging our global capabilities in trading, research, and global distribution. We aim to provide uninterrupted liquidity to our clients across asset classes and markets, and strive to offer best-in-class market access and execution services. Additionally, Global Markets will gear up for the digital transformation of our business.

In Investment Banking, we will continue to support our clients’ cross-border M&A ambitions, facilitate their fundraising activities both in Japan and other geographies, as well as provide the full product suite of our Solutions Business as our clients continue to pursue the globalization of their business activities.

 

   

Merchant Banking Division

The Merchant Banking Division will primarily provide equity as a new solution for business reorganizations and revitalizations, business succession as well as management buyouts to cater to the increasingly diversified and sophisticated needs of our clients. The Merchant Banking Division will, under proper management of risk, focus on support for improving the enterprise value of portfolio companies, and will contribute to expansion of the private equity market.

Risk Management and Compliance, etc.

At the Nomura Group, the type of risk and maximum amount of permissible risk for the purpose of achieving strategic objectives and business plans based on management philosophy is set forth as the Risk Appetite. We will continue to develop a risk management framework which ensures financial soundness, enhances corporate value, and is strategically aligned to the business plan and incorporated in decision making by senior management.

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. In addition to complying with laws and regulations, we will continuously review and improve our internal compliance system and rules for the purpose of promoting an environment of high ethical standards among all of our executive management and employees. In this way, we will meet the expectations of society and clients toward the Nomura Group and contribute to the further development of financial and capital markets.

Nomura Group established the Nomura Founding Principles and Corporate Ethics Day in 2015. Commemorated annually, this day aims to remind all of our executive officers and employees of the lessons learned from the incident and to renew our determination to prevent similar incidents from recurring in the future and further improve public trust through various measures. We will strive to maintain a sound corporate culture through these initiatives. We have also further enhanced and reinforced our internal control framework, which includes measures to prevent insider trading and solicitation of unfair dealing, by ensuring that all of our executive officers and employees continually maintain the highest level of business ethics expected from professionals engaged in the capital markets.

However, in March 2019, amidst discussions regarding the criteria for designation to and exit from the upper section of the exchange at the Advisory Group to Review the TSE Cash Equity Market Structure, there

 

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were inappropriate information transfers regarding such criteria at Nomura Securities Co., Ltd. (“NSC”) (“this matter”).

As for this matter, on May 28th, Japan Financial Services Agency (“JFSA”) issued a business improvement order against Nomura Holdings Inc. (“NHI”) and NSC in terms of management framework and control on information.

Prior to the issuance of business improvement order, on May 24th, we publicized an outline of remediation action plan which was approved by the Board of Directors and contains structural reorganization as well as establishing a framework to tightly control the information that could materially affect investment decisions.

On June 3rd, NHI and NSC submitted reports on their business improvement measures to JFSA in accordance with the business improvement order.

By fully implementing the remediation action plan, we will further strengthen our internal control framework and work together as one firm to regain the trust of our clients, shareholders and all other concerned parties.

 

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C. Organizational Structure.

The following table lists the Company and its significant subsidiaries and their respective countries of incorporation. Indentation indicates the principal parent of each subsidiary. Proportions of ownership interest include indirect ownership.

 

Name

   Country    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 Financial Partners Co., Ltd.

   Japan      100  

Nomura Funds Research and Technologies Co., Ltd.

   Japan      100  

Nomura Research & Advisory Co., Ltd.

   Japan      100  

Nomura Business Services Co., Ltd.

   Japan      100  

Nomura Facilities, Inc.

   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 Land and Building 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 Asia Pacific Holdings Co., Ltd.

   Japan      100  

Nomura International (Hong Kong) Limited

   Hong Kong      100  

Nomura Singapore Limited

   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      86  

Nomura Financial Advisory and Securities (India) Private Limited

   India      100  

Nomura Holding America Inc.

   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

   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  

 

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D. Property, Plants and Equipment.

Our Properties

As of March 31, 2019, our principal head office is located in Tokyo, Japan and occupies 968,050 square feet of office space. Our other major offices in Japan are our Osaka branch office, which occupies 125,184 square feet, our Nagoya branch office, which occupies 82,914 square feet, and the head office of NAM in Tokyo, which occupies 178,218 square feet.

As of March 31, 2019, our major offices outside Japan are the head offices of NIP located in London, which occupies 456,296 square feet, the New York head office of Nomura Securities International, Inc., which occupies 159,811 square feet, and the offices of Nomura International (Hong Kong) Limited located in Hong Kong which occupies 146,389 square feet. We lease most of our overseas office space.

As of March 31, 2019, the major office of Nomura Services India Private Limited, our specialized service company in Mumbai, India, occupies 413,517 square feet.

As of March 31, 2019, the aggregate book value of the land and buildings we owned was ¥153 billion, and the aggregate book value of equipment we owned, including communications and data processing facilities, was ¥75 billion.

Item 4A. Unresolved Staff Comments

We are a large accelerated filer as defined in Rule 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, 2019 and which remain unresolved as of the date of the filing of this annual report with the Commission.

Item 5. Operating and Financial Review and Prospects

A. Operating Results.

You should read the following discussion of our operating and financial review and prospects together with Item 3.A“Selected Financial Data” of this annual report and our consolidated financial statements included elsewhere in this annual report.

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

Japan

The Japanese economy had its ups and downs. Japan’s real gross domestic product (“GDP”) rose a solid 2.2% quarter-on-quarter, annualized, in April-June 2018, and fell 2.5% in July-September. After returning to growth of 1.6% in October-December, it rose 2.1% in January-March 2019, but we think actual economic activity was on the weak side in January-March as other economic indicators were weak. Until April-June 2018, the economy was led by an increase in exports backed by growth in the global economy, and domestic demand was solid overall. However, thereafter, the ability of exports to drive the economy weakened as the global economy entered a cyclical softening phase and prospects for the economy became increasingly cloudy as

 

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U.S.-China trade tensions intensified. In July-September, demand in Japan weakened overall as many natural disasters occurred, and in particular, exports fell as the Kansai International Airport stopped functioning for a while from the effects of a typhoon. In October-December, GDP likely rose in large part in reaction to the natural disaster-driven decline in July-September, but the reaction was not that strong. In January-March 2019, exports were weak, particularly to Asia, and the slowdown in the global economy continued to weigh on economic activity in Japan. Employment conditions were relatively favorable over this period, with the unemployment rate at a low level, but wage growth remained low and consumer confidence worsened. Consumer durable sales held up through the end of 2018, possibly in consideration of the consumption tax increase scheduled for October 2019, but consumer spending in the New Year was weak, in tandem with the decline in share prices. Corporate capital expenditure plans were comparatively strong owing to demand for labor-saving technology in response to personnel shortages, but they became more cautious amid uncertainty about global economic conditions and leading indicators of capital spending have weakened since autumn of 2018.

With respect to corporate earnings, recurring profits appear to have risen slightly compared with the year ended March 31, 2018, as a slowdown in business activity became clear in Japan and overseas. It appears that profit growth for industrial machinery, particularly factory automation (“FA”) systems, which was strong in the year ended March 31, 2018, softened or turned to a profit decline as appetite for capital expenditure fell, mainly in China, in response to trade friction between the US and China. Profits were also dragged down by the recognition of unrealized losses on equity securities resulting from changes in the market value of stock holdings and by special factors including dealing with improper inspections and quality issues. Sectors that did well appear to have been trading companies, where resource operations were strong owing to buoyant crude oil and other resource prices, and non-resource operations also held up, including lifestyle/consumer-related businesses; chemicals, which benefited from higher market prices of semiconductor silicon, graphite electrodes, and other products; electronic parts, as automotive and other products did well; and semiconductor production equipment, owing to a large order backlog. Recurring profits at major companies (those in the Russell/Nomura Large Cap Index) rose an estimated 1.1% year-on-year in the fiscal year ended March 31, 2019. Profit grew for the third straight year, but profit growth slowed sharply from 15.3% year-on-year in the fiscal year ended March 31, 2018. Return on equity (“ROE”) was 9.3% for the year ended March 31, 2019, falling short of 10.3% for the year ended March 31, 2018, which was the highest level in 37 years.

In the equity market, investors became more risk averse on the back of U.S.-China trade friction and other uncertainties in the market environment and a widening in credit spreads, among other factors. Japanese equities started off the year ended March 31, 2019, by rallying from a selloff at the end of March 2018, but zig-zagged the rest of the first half of the fiscal year against a backdrop of an uncertain market environment reflecting the U.S.-China trade friction, European political concerns, and prospects for the global economy. In September, the U.S. proposed fresh trade negotiations with China, raising expectations for improved U.S.-China relations. The Nikkei Stock Average closed at 24,245.76 on October 1, 2018, the highest it had been at since November 1991. However, thereafter, Japanese stocks were weighed down by an increase in U.S. long-term interest rates in response to tightening financial conditions as the U.S. Federal Reserve Board (FRB) normalized U.S. monetary policy. Through end of 2018, major equity markets around the world corrected, including the Nikkei Stock Average, which fell below 20,000 at one point. That said, the FRB indicated it would put a halt to monetary tightening, and toward the end of the year ended March 31, 2019, expectations for progress with U.S.-China trade talks increased. Buttressed by these factors, major equity markets around the world rallied toward the end of the fiscal year. The Tokyo Stock Price Index (the “TOPIX”), a representative equity index, was 1,591.64 at end of March 2019, down 7.3% from 1,716.30 at end of March 2018. The Nikkei Stock Average was 21,205.81 at the end of March 2019, down 1.2% from 21,454.30 at the end of March 2018.

On the bond market, with the Bank of Japan (BOJ) maintaining its framework for quantitative and qualitative monetary easing with yield curve control, the yield on newly issued 10-year Japanese government debt securities was largely in the range of -0.10% to 0.15%. More specifically, from April to mid-July 2018, the yield on newly issued 10-year Japanese government debt securities was largely in the tight range of 0.2% to 0.6%. When the yield on newly issued 10-year Japanese government debt securities rose above 0.1% in February

 

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2018, the BOJ conducted market operations to cap rising interest rates, indicating it did not want interest rates to sharply exceed 0.1%. Then in mid-July, the yield on newly issued 10-year Japanese government debt securities rose to around 0.1% in response to news reports that the BOJ was considering a more flexible monetary policy, and the BOJ decided at its July 30-31 Monetary Policy Meeting to expand the range of allowable movement for the yield on 10-year Japanese government debt securities to -0.2% to 0.2%, from -0.1% to 0.1%. Soon after, interest rate increases picked up, yields at one point on August 2, rose to 0.145%, but with the BOJ conducting an emergency long-term Japanese government debt securities purchase operation, returned to around 0.1%. In mid-September and beyond, the upward trend strengthened for the yield on newly issued 10-year Japanese government debt securities along with rising overseas interest rates, and in early October, the yield briefly marked 0.155%, but equity prices fell in the U.S. on concerns the FRB’s interest rate hike stance was too strong relative to underlying economic activity, and from mid-November, U.S. long-term interest rates turned to a downtrend and accordingly the yield on newly issued 10-year Japanese government debt securities fell. At the U.S. FOMC meeting on December 18-19, the FRB maintained its interest rate hike policy, and Japan’s interest rates fell further, to around 0%, along with overseas interest rates, on concerns of a slowdown in the economy. At the start of 2019, the FRB indicated that it would focus on the economy, after which equity prices turned upward and long-term interest rates were spurred downward, with the yield on newly issued 10-year Japanese government debt securities at end of March falling briefly to -0.1%.

In foreign exchange markets, USD/JPY, which started the fiscal year at $1 = ¥106-¥107, moderately moved in the direction of a strong dollar/weak yen in response to continued policy interest rate hikes by the FRB, and in October was around ¥114-¥115. That said, rises in the USD/JPY rate were weighed down by intensification of U.S.-China trade frictions. Furthermore, in October and beyond crude oil prices fell sharply, in December U.S. equities corrected, and, with investors generally becoming more risk averse, the yen strengthened rapidly at the end of 2018 and start of 2019. In particular, when Japanese markets were closed on January 3, and partly owing to thin trading, the USD/JPY rate was briefly at ¥104-¥105, among other erratic movements. Thereafter, USD/JPY rose moderately, but upside became limited in January 2019 and beyond, after the FRB made it clear it would hold off on interest rate hikes for the time being, and USD/JPY ended March 2019 at ¥110.86.

Meanwhile, EUR/JPY started the fiscal year of 2018 at €1 = ¥130-¥131, but fell to ¥125-¥126 in May, with the economy slowing and the emergence of populist political parties in the eurozone. Thereafter, economic data for the eurozone showed signs of recovery, but political concerns in Turkey and other factors led to the EUR/JPY trading in a tight range with limited upside for a while. Furthermore, increased uncertainty toward the end of the fiscal year surrounding the U.K.’s exit from the EU and the European Central Bank (ECB)’s postponement of rate hike plans resulted in EUR/JPY continuing to be capped on the upside and ending March 2019 at €1 = ¥124.35.

Overseas

The global economy grew in both industrialized and emerging-market nations, but the pace of growth slowed. Financial markets were destabilized by concerns over protectionist policies, including the U.K.’s negotiations to leave the EU and U.S.-China trade friction. Major central banks largely put on hold moves to tighten monetary policy. The U.S. FRB more or less raised interest rates at a pace of once every three months, but decided at the March 2019 meeting to leave policy interest rates unchanged. The BOJ maintained its large-scale quantitative easing policy, and the ECB suspended its asset purchase program at the end of December 2018 but via forward guidance indicated that it would keep policy rates unchanged at least through the end of 2019. At the same time in emerging-market nations, the Chinese economy increasingly slowed owing to policies to reduce debt, trade tensions with the U.S., and deterioration of business conditions in the IT sector. High growth continued in India, but signs of slowing in consumer spending emerged. Uncertainties also grew in resource-rich and oil-producing nations.

In the U.S., interest rates fell sharply as the FRB effectively stopped raising rates. In September 2018, FOMC projections for the federal funds rate in 2021 were 3.375%, higher than the projections for the longer run of 3.000%, but thereafter the FRB lowered its rate hike outlook and, in March 2019, FOMC projections for the

 

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federal funds rate in 2021 were 2.625%, below the projection for the longer run of 2.750%. At the same time, the FRB decided not to raise rates in March 2019, and rate hikes that had continued at a pace of once a quarter in 2018 stopped in December 2018 at a target range of 2.25%-2.50%. The FRB also decided in March 2019 to end by mid-2019 the balance sheet compression that had continued throughout 2018 as part of a monetary policy normalization effort. The trigger for the sharp change in FRB policy was the sharp drop in equity prices in the second half of 2018. In 2018, the U.S. and China exchanged the imposition of additional tariffs and retaliatory tariffs, raising concerns over trade frictions in the market. U.S. equity prices fell sharply toward the end of 2018. In 2019, the equity market recovered with the FRB turning to a dovish stance, as mentioned above, and the U.S. briefly putting off tariff hikes. Real GDP grew 2.9% in 2018, up from 2.2% growth in 2017. Inflation rose 1.9% year on year in March 2019, down from an increase of 2.4% in March 2019. The Dow Jones Industrial Average rose 7.6% to 25,929 at the end of March 2019, from 24,103 at the end of March 2018. The yield on 10-year U.S. Treasuries fell 33bp to 2.41% at the end of March 2019, from 2.74% at the end of March 2018.

The euro area economy slowed down from July-September 2018. The largest economy in the eurozone, Germany, was adversely affected by the slowdown in the Chinese economy and reduced demand for autos in key eurozone countries. Brexit was initially scheduled for March 29, 2019, and inventory investment demand accompanying Brexit concerns briefly rose in the eurozone in January-March 2019, but companies in the area became more cautious about economic prospects. The ECB announced in December 2018 that it would scale back monetary easing by taking monthly net asset purchases under the quantitative easing policy to zero at end of 2018, but in March 2019, it said it would make no change to policy interest rates at least through the end of 2019 in view of a slowdown in the German economy. With the ECB taking a cautious stance on rate hikes for the time being, the yield on 10-year German government bonds fell below zero in late March 2019 for the first time since autumn of 2016. In the U.K., the withdrawal agreement Prime Minister Theresa May reached with the EU in November 2018 to realize a smooth departure from the EU for the U.K. was rejected by the lower house of the U.K. Parliament three times, and the Brexit date was postponed to the end of October 2019, from the initial schedule of March 29, 2019.

In Asia, real GDP grew 6.6% in China in 2018, down from 6.8% in 2017. This is mainly attributable to capital expenditures and domestic consumption slowing in the second half of the year owing to monetary tightening. Monetary policy switched to an easing stance in the second half of 2018, and large-scale tax cuts were carried out targeting businesses and households. However, the outlook is for weak growth in exports and capital expenditures. If economic slowdown concerns increase, the market would be likely to increasingly anticipate additional measures to be taken to stimulate consumer spending and additional infrastructure spending. In other Asian countries, U.S.-China trade frictions and uncertainty about external conditions have weighed on economic activity, but solid economic growth has continued, centered on domestic demand.

Executive Summary

Although the global economy continued to recover during the fiscal year ended March 31, 2019, the pace of expansion slowed in some countries and regions. In the U.S., acceleration in real Gross Domestic Product (“GDP”) growth continued from 2017. Personal consumption and government spending grew against a backdrop of tax reforms and fiscal expansion, and capital expenditures were also solid. At the same time, the Federal Reserve Board (FRB) shifted course and now plans to refrain from tightening monetary policy further in 2019 in response to disruption in financial markets. In China, credit creation slowed as a result of the government’s efforts to reduce debt, and trade frictions between the U.S. and China made corporations less eager to engage in capital expenditures. Consumer spending also slowed, for example in automobile sales, which faltered after the end of the government’s policies promoting automobile purchases. In Europe as well, exports to China weakened owing to the slowdown in Chinese economic growth. A slump in automobile sales after the introduction of stricter exhaust emission regulations also weighed on the European economy. In the U.K., the opaque outlook for Brexit continued to suppress corporate appetites for investment.

 

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Similarly, Japan’s economy continued to expand, but at a slower pace. Exports were sluggish as a result of the slowdown in global economies, particularly in China. Personal consumption was also low, in part because of a string of natural disasters including heavy rains, typhoons, and earthquakes, which also disrupted supply chains and otherwise affected corporate production activity. Corporate capital expenditures were nevertheless solid, bolstered by labor-saving investments by companies facing personnel shortages. We estimate that profit growth in the fiscal year ended March 31, 2019, at major corporations slowed sharply versus the previous fiscal year, mainly owing to the slowdown in the economy. Market volatility was high at times during the second half of the fiscal year in response to trade friction between the U.S. and China and changes in U.S. monetary policy.

From a regulatory perspective, in addition to the implementation of Basel III requirements relating to capital ratio, liquidity ratio, and leverage ratio, Nomura has been identified as one of Domestic Systemically Important Banks. Nomura will continue to monitor closely and take necessary measures in responding to wide-ranging reforms as part of the global tightening of financial regulations. Also, under circumstances characterized by normalization of monetary policies by central banks as well as uncertainty created by Brexit, Nomura is contemplating and implementing appropriate measures by paying necessary attention to the changes in global operating environment.

While our environment is changing drastically, Nomura Group has settled litigations and booked impairment of goodwill related to acquisitions made in the past. Based on our basic philosophy of “placing our clients at the heart of everything we do,” we have continued to transform our domestic business model of Retail Division, and have worked on improving the profitability of our international operations. These initiatives are all intended to establish a business foundation that will enable the firm to grow in a sustainable manner in any business environment. Also, in April 2019, the firm established Future Innovation Company, an organization that spans all divisions, in order to leverage innovations including digital tools and build a platform for providing new services to clients.

We generated net revenue of ¥1,116.8 billion for the year ended March 31, 2019, a 25.4% decrease from the previous fiscal year. Non-interest expenses decreased by 1.2% to ¥1,154.5 billion, income (loss) before income taxes was ¥(37.7) billion, and net income (loss) attributable to the shareholders of Nomura Holdings, Inc. was ¥(100.4) billion. Return on equity (“ROE”) was negative 3.7%. Diluted EPS(1) for the year ended March 31, 2019 was negative ¥29.92, a decrease from ¥61.88 for the year ended March 31, 2018.

We have decided to pay a dividend of ¥3 per share to shareholders of record as of March 31, 2019. As a result, the total annual dividend was ¥6 per share.

In our Retail Division, net revenue for the year ended March 31, 2019 decreased by 17.8% from the previous fiscal year to ¥339.5 billion. Non-interest expenses decreased by 6.4% to ¥290.0 billion. As a result, income before income taxes decreased by 52.0% to ¥49.5 billion. Under the basic philosophy of “placing our clients at the heart of everything we do,” we provided consulting services to become “the most trusted partner” by understanding and meeting their diversified demands and needs. Last fiscal year, uncertain market environment weighed on investor sentiment, Investment trusts and stocks remained sluggish. As we made substantial organizational changes for elder clients, Net inflows of cash and securities recorded positive through 9 consecutive months. We are continuously working hard to improve the customer satisfaction by improving the products and services.

In our Asset Management Division, net revenue for the year ended March 31, 2019 decreased by 23.2% from the previous fiscal year to ¥97.8 billion. Non-interest expenses increased by 4.1% to ¥63.7 billion. As a result, income before income taxes decreased by 48.3% to ¥34.2 billion. In the investment trust business, ETFs, funds developed in response to financial institutions’ demands, and funds specialized for SMA or fund wrap service contributed to the increase in assets under management. In the investment advisory business, we saw cash

 

(1)

Diluted net income attributable to Nomura Holdings’ shareholders per share.

 

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inflow into high yield related products in overseas despite outflow in domestic pensions. As a result, assets under management increased from the end of the previous fiscal year as of March 31, 2019. However, revenues decreased compared to the previous quarter, partially effected by the valuation of American Century Investments, our strategic partner.

In our Wholesale Division, net revenue for the year ended March 31, 2019 decreased by 22.4% from the previous fiscal year to ¥555.4 billion. Non-interest expenses increased by 8.5% to ¥666.8 billion. As a result, income (loss) before income taxes was ¥(111.4) billion. In Global Markets, the year ended March 2019 was a particularly tough year across the street, characterized by geopolitical uncertainty and persistent low volatility, leading to low client volumes and directionless markets that prevailed most part of the year. In this environment, Global Markets declined sequentially, particularly in the Fixed Income businesses. Equities business and Structured franchise made some notable contributions but was moderate compared with the previous fiscal year. For Investment Banking, revenues declined year on year as the global fee pool contracted. However, strong cross-regional and interdepartmental collaboration helped deliver firmness in our M&A and ECM (equity-related fundraising business) businesses and supported revenue performance. In Japan, we continued to provide our clients with various products and solutions as well as participated in numerous high profile transactions such as Takeda’s acquisition of Shire and SoftBank’s global IPO. In the International regions, we leveraged our global connectivity to successfully execute major cross-border M&A transactions for our clients as well as provided our clients with various interest rate and foreign exchange solutions as increased market volatility resulted in greater demand, helping offset softer performances in financing related businesses.

Results of Operations

Overview

The following table provides selected consolidated statements of income information for the years ended March 31, 2017, 2018 and 2019.

 

     Millions of yen, except percentages  
     Year ended March 31  
     2017     2018     2019  

Non-interest revenues:

      

Commissions

   ¥ 327,129     ¥ 373,313     ¥ 293,069  

Fees from investment banking

     92,580       101,663       101,521  

Asset management and portfolio service fees

     216,479       245,616       245,519  

Net gain on trading

     475,587       442,885       342,964  

Gain (loss) on private equity investments

     1,371       (869     1,007  

Gain (loss) on investments in equity securities

     7,708       2,683       (6,983

Other

     153,626       221,192       81,057  
  

 

 

   

 

 

   

 

 

 

Total Non-interest revenues

     1,274,480       1,386,483       1,058,154  

Net interest revenue

     128,717       110,486       58,616  
  

 

 

   

 

 

   

 

 

 

Net revenue

     1,403,197       1,496,969       1,116,770  

Non-interest expenses

     1,080,402       1,168,811       1,154,471  
  

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     322,795       328,158       (37,701

Income tax expense

     80,229       103,866       57,010  
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   ¥ 242,566     ¥ 224,292     ¥ (94,711

Less: Net income attributable to noncontrolling interests

     2,949       4,949       5,731  
  

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to NHI shareholders

   ¥ 239,617     ¥ 219,343     ¥ (100,442
  

 

 

   

 

 

   

 

 

 

Return on equity

     8.7     7.9     (3.7 )% 

 

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Net revenue decreased by 25% from ¥1,496,969 million for the year ended March 31, 2018 to ¥1,116,770 million for the year ended March 31, 2019. This decrease is primarily driven by Commissions and Net gain on trading in Retail and Wholesale Division. Commissions decreased by 21% from ¥373,313 million for the year ended March 31, 2018 to ¥293,069 million for the year ended March 31, 2019 primarily due to a decrease in commissions received from the distribution of investment trusts and brokerage commissions received from equity and equity-related products. Fees from investment banking primarily led by M&A and ECM, such as acquisition of Shire Plc by Takeda Pharmaceutical Co. and IPO of Softbank Corp was largely unchanged from ¥101,663 million for the year ended March 31, 2018 to ¥101,521 million for the year ended March 31, 2019. Asset management and portfolio service fees was largely unchanged from ¥245,616 million for the year ended March 31, 2018 to ¥245,519 million for the year ended March 31, 2019, although assets under management increased by positive net inflows into private placement trust for financial institutions and investment trusts for discretionary investments. Net gain on trading decreased by 23% from ¥442,885 million for the year ended March 31, 2018 to ¥342,964 million for the year ended March 31, 2019, driven by decreases in both Fixed Income and Equity business. Net gain on trading also included total gains of ¥0.2 billion attributable to changes in Nomura’s own creditworthiness with respect to derivative liabilities primarily due to a widening of Nomura’s credit spreads during the fiscal year. Gain (loss) on private equity investments were ¥(869) million for the year ended March 31, 2018 and ¥1,007 million for the year ended March 31, 2019. Other decreased by 63% from ¥221,192 million for the year ended March 31, 2018 to ¥81,057 million for the year ended March 31, 2019, primarily driven by a decrease in American Century Investments related revenue and the absence of gains from the liquidation of an investment in a foreign entity and the sale of our controlling financial interest in Asahi Fire and Marine Insurance Co., Ltd recognized in the previous year.

Net revenue increased by 7% from ¥1,403,197 million for the year ended March 31, 2017 to ¥1,496,969 million for the year ended March 31, 2018. This increase is primarily driven by higher contribution from Commissions and Asset management and portfolio service fees in Retail and Asset Management. Commissions increased by 14% from ¥327,129 million for the year ended March 31, 2017 to ¥373,313 million for the year ended March 31, 2018 primarily due to an increase in commissions received from the distribution of investment trusts and brokerage commissions received from equity and equity-related products. Fees from investment banking increased by 10% from ¥92,580 million for the year ended March 31, 2017 to ¥101,663 million for the year ended March 31, 2018 primarily due to increase in revenue from M&A and our solution business associated with fund raising. Asset management and portfolio service fees increased by 13% from ¥216,479 million for the year ended March 31, 2017 to ¥245,616 million for the year ended March 31, 2018 primarily due to an increase in assets under management driven by positive net inflows into ETFs and investment trusts for discretionary investments. Net gain on trading decreased by 7% from ¥475,587 million for the year ended March 31, 2017 to ¥442,885 million for the year ended March 31, 2018, primarily driven by slower performance in our Fixed Income business and losses recognized in connection with a specific margin loan transaction. Net gain on trading also included total losses of ¥0.5 billion attributable to changes in Nomura’s own creditworthiness with respect to derivative liabilities primarily due to a tightening of Nomura’s credit spreads during the fiscal year. Gain (loss) on private equity investments were ¥1,371 million for the year ended March 31, 2017 and ¥(869) million for the year ended March 31, 2018. Other increased by 44% from ¥153,626 million for the year ended March 31, 2017 to ¥221,192 million for the year ended March 31, 2018, primarily driven by gains from the liquidation of an investment in a foreign entity and gains from the sale of our controlling financial interest in Asahi Fire and Marine Insurance Co., Ltd.

Net interest revenue was ¥128,717 million for the year ended March 31, 2017, ¥110,486 million for the year ended March 31, 2018 and ¥58,616 million for the year ended March 31, 2019. Net interest revenue is a function of the level and mix of total assets and liabilities, which includes trading assets and financing and lending transactions, and the level, term structure and volatility of interest rates. Net interest revenue is an integral component of trading activity. In assessing the profitability of our overall business and of our Global Markets business in particular, we view Net interest revenue and Non-interest revenues in aggregate. For the year ended March 31, 2019, interest revenue, including a dividend from our investment in American Century Investments increased by 33%, and interest expense increased by 51% from the year ended March 31, 2018. As a result, Net

 

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interest revenue for the year ended March 31, 2019 decreased by ¥51,870 million from the year ended March 31, 2018. For the year ended March 31, 2018, interest revenue, including a dividend from American Century Investments, increased by 33%, and interest expense increased by 52% from the year ended March 31, 2017. As a result, Net interest revenue for the year ended March 31, 2018 increased by ¥18,231 million from the year ended March 31, 2017.

Gain (loss) on investments in equity securities was ¥7,708 million for the year ended March 31, 2017, ¥2,683 million for the year ended March 31, 2018 and ¥(6,983) million for the year ended March 31, 2019. This 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.

Non-interest expenses for the year ended March 31, 2019 decreased by 1% from ¥1,168,811 million for the year ended March 31, 2018 to ¥1,154,471 million, due to the absence of provisions in connection with legacy transactions in the Americas recorded slightly over ¥30.0 billion in the previous year and lower bonus due to pay for performance offset by goodwill impairment charge of ¥81,372 million attributable to Wholesale.

Non-interest expenses for the year ended March 31, 2018 decreased by 8% from ¥1,080,402 million for the year ended March 31, 2017 to ¥1,168,811 million primarily due to an increase in compensation and benefits in connection with deferred compensation and provisions of slightly over ¥30.0 billion in connection with legacy transactions in the Americas.

Income (loss) before income taxes was ¥322,795 million for the year ended March 31, 2017, ¥328,158 million for the year ended March 31, 2018 and ¥(37,701) million for the year ended March 31, 2019.

We 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, 2017, 2018 and 2019, respectively. Our foreign subsidiaries are subject to the income taxes of the countries in which they 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 for the year ended March 31, 2019 was ¥57,010 million, representing an effective tax rate of a negative 151.2%. The significant factors causing the difference between the effective tax rate of a negative 151.2% and the effective statutory tax rate of 31% was the effect of Non-deductible expenses which decreased the effective tax rate by 110.3%, partially offset by Non-taxable revenue which increased the effective tax rate by 16.8%.

Income tax expense for the year ended March 31, 2018 was ¥103,866 million, representing an effective tax rate of 31.7%. The significant factors causing the difference between the effective tax rate of 31.7% and the effective statutory tax rate of 31% was the effect of changes in foreign tax laws which increased the effective tax rate by 23.5%, partially offset by changes in deferred tax valuation allowances, which decreased the effective tax rate by 22.8%.

Income tax expense for the year ended March 31, 2017 was ¥80,229 million, representing an effective tax rate of 24.9%. The significant factors causing the difference between the effective tax rate of 24.9% and the effective statutory tax rate of 31% were changes in deferred tax valuation allowance which decreased the effective tax rate by 10.8% but partially offset by non-deductible expenses which increased the effective tax rate by 2.9%.

Net income (loss) attributable to NHI shareholders was ¥239,617 million for the year ended March 31, 2017, ¥219,343 million for the year ended March 31, 2018 and ¥(100,442) million for the year ended March 31,

 

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2019. Our return on equity for the year ended March 31, 2017, 2018 and 2019 was 8.7%, 7.9% and a negative 3.7%, respectively.

Results by Business Segment

Our operating management and management reporting are prepared based on our Retail, Asset Management and Wholesale Divisions and we disclose business segment information in accordance with this structure. Realized gain on investments in equity securities held for operating purposes, our share of equity in the earnings of affiliates, corporate items and other financial adjustments (including operating result of Merchant Banking Division) are included as “Other” operating results outside of business segments in our segment information. Unrealized gain (loss) on investments in equity securities held for operating purposes is classified as a reconciling item outside of our segment information. The following segment information should be read in conjunction with Item 4.B “Business Overview” of this annual report and Note 22 “Segment and geographic information” in our consolidated financial statements included in this annual report. The reconciliation of our segment results of operations and consolidated financial statements is provided in Note 22 “Segment and geographic information” in our consolidated financial statements included in this annual report.

Retail

In our 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.

Operating Results of Retail

 

     Millions of yen  
     Year ended March 31  
     2017      2018      2019  

Non-interest revenue

   ¥ 369,503      ¥ 406,295      ¥ 331,743  

Net interest revenue

     4,931        6,613        7,737  
  

 

 

    

 

 

    

 

 

 

Net revenue

     374,434        412,908        339,480  

Non-interest expenses

     299,642        309,771        289,990  
  

 

 

    

 

 

    

 

 

 

Income before income taxes

   ¥ 74,792      ¥ 103,137      ¥ 49,490  
  

 

 

    

 

 

    

 

 

 

Net revenue decreased by 18% from ¥412,908 million for the year ended March 31, 2018 to ¥339,480 million for the year ended March 31, 2019 as a result of a decrease in retail investors’ transactions of stocks and investment trusts under the uncertain market condition weighed on investor sentiment.

Net revenue increased by 10% from ¥374,434 million for the year ended March 31, 2017 to ¥412,908 million for the year ended March 31, 2018 as a result of an increase in retail investors’ transactions of stocks and investment trusts under the strong market condition.

Non-interest expenses decreased by 6% from ¥309,771 million for the year ended March 31, 2018 to ¥289,990 million for the year ended March 31, 2019, primarily due to a decrease in compensation and benefit and system-related expenses with the termination of system depreciation.

Non-interest expenses increased by 3% from ¥299,642 million for the year ended March 31, 2017 to ¥309,771 million for the year ended March 31, 2018, primarily due to an increase in system-related expenses.

 

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Income before income taxes were ¥74,792 million for the year ended March 31, 2017, ¥103,137 million for the year ended March 31, 2018, and ¥49,490 million for the year ended March 31, 2019.

The following table shows the breakdown of Retail non-interest revenues for the year ended March 31, 2018 and 2019.

 

     Millions of yen  
     Year ended March 31  
     2018      2019  

Commissions

   ¥ 192,715      ¥ 142,764  

Brokerage commissions

     82,210        60,167  

Commissions for distribution of investment trusts

     87,055        57,880  

Other commissions

     23,450        24,717  

Net gain on trading

     91,469        55,829  

Fees from investment banking

     25,951        33,981  

Asset management fees

     93,582        95,384  

Others

     2,578        3,785  
  

 

 

    

 

 

 

Non-interest revenues

   ¥ 406,295      ¥ 331,743  
  

 

 

    

 

 

 

Commissions decreased by 26% from ¥192,715 million for the year ended March 31, 2018 to ¥142,764 million for the year ended March 31, 2019, primarily due to a decrease in commissions received from the distribution of investment trusts and brokerage commissions received from equity and equity-related products. Net gain on trading decreased by 39% from ¥91,469 million for the year ended March 31, 2018 to ¥55,829 million for the year ended March 31, 2019, primarily due to a decrease in income related to foreign equities. Fees from investment banking increased by 31% from ¥25,951 million for the year ended March 31, 2018 to ¥33,981 million for the year ended March 31, 2019, primarily led by ECM, such as IPO of Softbank Corp. Asset management fees increased by 2% from ¥93,582 million for the year ended March 31, 2018 to ¥95,384 million for the year ended March 31, 2019. Others increased by 47% from ¥2,578 million for the year ended March 31, 2018 to ¥3,785 million for the year ended March 31, 2019.

Retail Client Assets

The following table presents amounts and details regarding the composition of Retail client assets as of March 31, 2018 and 2019. 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, 2018  
     Balance at
beginning of year
     Gross inflows      Gross outflows     Market
appreciation /
(depreciation)
    Balance at
end of year
 

Equities

   ¥ 66.3      ¥ 13.7      ¥ (11.9   ¥ 7.6     ¥ 75.7  

Bonds

     17.6        31.5        (30.1     (1.1     17.9  

Stock investment trusts

     8.8        3.9        (3.5     (0.1     9.1  

Bond investment trusts

     7.3        0.8        (0.5     (0.5     7.1  

Overseas mutual funds

     1.3        0.1        (0.1     (0.1     1.2  

Others

     6.4        0.8        (0.6     0.1       6.7  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total

   ¥ 107.7      ¥ 50.8      ¥ (46.7   ¥ 5.9     ¥ 117.7  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

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     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  

Bonds

     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  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Retail client assets decreased by ¥3.0 trillion from ¥117.7 trillion as of March 31, 2018 to ¥114.7 trillion as of March 31, 2019. The balances of our clients’ equity and equity-related products decreased by ¥3.8 trillion from ¥75.7 trillion as of March 31, 2018 to ¥71.9 trillion as of March 31, 2019, mainly due to the deterioration of Japanese equity market and increase of net outflows. The balances of our clients’ investment trusts decreased by ¥0.5 trillion from ¥17.4 trillion as of March 31, 2018 to ¥16.9 trillion as of March 31, 2019.

Retail client assets increased by ¥10.0 trillion from ¥107.7 trillion as of March 31, 2017 to ¥117.7 trillion as of March 31, 2018. The balances of our clients’ equity and equity-related products increased by ¥9.4 trillion from ¥66.3 trillion as of March 31, 2017 to ¥75.7 trillion as of March 31, 2018, mainly due to the turnaround of Japanese equity market and increase of net inflows. The balances of our clients’ investment trusts had been flat and was ¥17.4 trillion as of March 31, 2018.

Asset Management

Our Asset Management Division is conducted principally through Nomura Asset Management Co., Ltd. (“NAM”). We earn portfolio management fees through the development and management of investment trusts, which are distributed through Nomura Securities Co., Ltd. (“NSC”), other brokers and banks. We also provide investment advisory services for pension funds and other institutional clients. Net revenue generally consist of asset management and portfolio service fees that are attributable to Asset Management.

Operating Results of Asset Management

 

     Millions of yen  
     Year ended March 31  
     2017      2018      2019  

Non-interest revenue

   ¥ 90,025      ¥ 118,545      ¥ 89,607  

Net interest revenue

     9,402        8,792        8,238  
  

 

 

    

 

 

    

 

 

 

Net revenue

     99,427        127,337        97,845  

Non-interest expenses

     57,094        61,167        63,660  
  

 

 

    

 

 

    

 

 

 

Income before income taxes

   ¥ 42,333      ¥ 66,170      ¥ 34,185  
  

 

 

    

 

 

    

 

 

 

Net revenue decreased by 23% from ¥127,337 million for the year ended March 31, 2018 to ¥97,845 million for the year ended March 31, 2019, primarily due to American Century Investments related losses, while cash inflow in the investment trust business and investment advisory business contributed to the increase in assets under management and business performance improved.

Net revenue increased by 28% from ¥99,427 million for the year ended March 31, 2017 to ¥127,337 million for the year ended March 31, 2018, primarily due to a large increase in assets under management and contributions from American Century Investments related gains.

 

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Non-interest expenses increased by 4% from ¥61,167 million for the year ended March 31, 2018 to ¥63,660 million for the year ended March 31, 2019, mainly due to an increase in system-related expenses.

Non-interest expenses increased by 7% from ¥57,094 million for the year ended March 31, 2017 to ¥61,167 million for the year ended March 31, 2018, due to an increase in compensation and benefits and commissions and floor brokerage followed by a revenue increase.

Income before income taxes were ¥42,333 million for the year ended March 31, 2017, ¥66,170 million for the year ended March 31, 2018 and ¥34,185 million for the year ended March 31, 2019.

The following table presents assets under management of each principal Nomura entity within the Asset Management Division as of March 31, 2018 and 2019.

 

    Billions of yen  
    Year ended March 31, 2018  
    Balance at
beginning of year
    Gross inflows     Gross outflows     Market
appreciation /
(depreciation)
    Balance at
end of year
 

Nomura Asset Management Co., Ltd.

  ¥ 47,425     ¥ 30,778     ¥ (28,788   ¥ 2,966     ¥ 52,381  

Nomura Funds Research and Technologies Co., Ltd.

    2,839       700       (913     139       2,765  

Nomura Corporate Research and Asset Management Inc.

    2,357       942       (613     (2     2,684  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Combined total

    52,621       32,420       (30,314     3,103       57,830  

Shared across group companies

    (8,262     (2,017     2,665       (201     (7,815
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  ¥ 44,359     ¥ 30,403     ¥ (27,649   ¥ 2,902     ¥ 50,015  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

    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  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Notes: Nomura Funds Research and Technologies Co., Ltd. was reclassified to Other segment as a result of our organizational structure change in April 2018.

Assets under management were ¥51.4 trillion as of March 31, 2019, a ¥7.0 trillion increase from March 31, 2017 (increased due to positive net inflows of ¥4.4 trillion and market appreciation of ¥2.6 trillion) and a ¥1.4 trillion increase from March 31, 2018 (increased due to positive net inflows of ¥1.6 trillion and market depreciation of ¥0.2 trillion). In our investment trust business, there was a continued inflow into equity funds such as ETFs.

 

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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, 2017, 2018 and 2019.

 

     March 31  
     2017     2018     2019  

Total of publicly offered investment trusts

     26     27     28

Stock investment trusts

     23     25     26

Bond investment trusts

     44     44     45

The investment trust assets included in assets under management by NAM were ¥35.6 trillion as of March 31, 2019, a ¥1.5 trillion, 4% increase from March 31, 2018. This increase is due to positive net inflows of ¥2.2 trillion and market depreciation of ¥0.7 trillion. The balances of investment trusts, such as TOPIX Exchange Traded Fund and Nikkei 225 Exchange Traded Fund increased.

The investment trust assets included in assets under management by NAM were ¥34.1 trillion as of March 31, 2018, a ¥4.8 trillion, 16% increase from March 31, 2017. This increase is due to positive net inflows of ¥3.3 trillion and market appreciation of ¥1.5 trillion. The balances of investment trusts, for example TOPIX Exchange Traded Fund and Nikkei 225 Exchange Traded Fund, and foreign stock investment trusts such as Nomura India Investment Fund increased.

Wholesale

Operating Results of Wholesale

The operating results of our Wholesale Division comprise the combined results of our Global Markets and Investment Banking businesses.

 

     Millions of yen  
     Year ended March 31  
     2017      2018      2019  

Non-interest revenue

   ¥ 564,877      ¥ 587,474      ¥ 496,484  

Net interest revenue

     174,379        127,859        58,904  
  

 

 

    

 

 

    

 

 

 

Net revenue

     739,256        715,333        555,388  

Non-interest expenses

     577,809        614,745        666,787  
  

 

 

    

 

 

    

 

 

 

Income (loss) before income taxes

   ¥ 161,447      ¥ 100,588      ¥ (111,399
  

 

 

    

 

 

    

 

 

 

Net revenue decreased by 22% from ¥715,333 million for the year ended March 31, 2018 to ¥555,388 million for the year ended March 31, 2019. Fixed Income revenues decreased year on year due to lower performance mainly in rates products because of uncertain markets, also Equities revenues decreased due to lower client activities and Investment Banking revenues decreased year on year despite the contribution from M&A and ECM, such as acquisition of Shire Plc by Takeda Pharmaceutical Co. and IPO of Softbank Corp.

Net revenue increased by 3% from ¥739,256 million for the year ended March 31, 2017 to ¥715,333 million for the year ended March 31, 2018. Equities reported higher revenues because client activities recovered in the active market throughout the year despite losses recognized in connection with a specific margin loan and Investment Banking revenues increased due to an increase in large M&A transactions in Japan, while Fixed Income revenues decreased year on year mainly due to lower performance in rates products because of low volatility in the markets.

Non-interest expenses increased by 8% from ¥614,745 million for the year ended March 31, 2018 to ¥666,787 million for the year ended March 31, 2019, primarily due to goodwill impairment recognized on December 2018, and one-off expenses related to revision of business portfolio.

 

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Non-interest expenses increased by 6% from ¥577,809 million for the year ended March 31, 2017 to ¥614,745 million for the year ended March 31, 2018, primarily due to commissions and floor brokerage expenses as a result of increased transaction volumes in Equities and an increase in compensation and benefit.

Income (loss) before income taxes were ¥161,447 million for the year ended March 31, 2017, ¥100,588 million for the year ended March 31, 2018 and ¥(111,399) million for the year ended March 31, 2019.

The following table presents a breakdown of net revenue for Wholesale for the year ended March 31, 2017, 2018 and 2019.

 

     Millions of yen  
     Year ended March 31  
     2017      2018      2019  

Wholesale net revenue:

        

Global Markets net revenue

   ¥ 634,210      ¥ 603,197      ¥ 453,044  

Investment Banking net revenue

     105,046        112,136        102,344  
  

 

 

    

 

 

    

 

 

 

Net revenue

   ¥ 739,256      ¥ 715,333      ¥ 555,388  

Nomura established Client Financing and Solutions (“CFS”) in April, 2018. In CFS, Global Markets and Investment Banking co-work and revenue generated from CFS is allocated to Global Markets and Investment Banking in a certain manner. Accordingly, we reclassified a part of net revenue which previously belonged to Global Markets to Investment Banking.

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 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 Asset 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 revenue decreased by 25% from ¥603,197 million for the year ended March 31, 2018 to ¥453,044 million for the year ended March 31, 2019. In our Fixed Income businesses, Net revenue decreased from ¥341,594 million for the year ended March 31, 2018 to ¥232,835 million for the year ended March 31, 2019 primarily due to lower performance mainly in rates products because of uncertain markets. In our Equities business, Net revenue decreased from ¥261,603 million for the year ended March 31, 2018 to ¥220,209 million for the year ended March 31, 2019 due to lower client activities under uncertain markets.

Net revenue decreased by 5% from ¥634,210 million for the year ended March 31, 2017 to ¥603,197 million for the year ended March 31, 2018. In our Fixed Income businesses, Net revenue decreased from ¥401,889 million for the year ended March 31, 2017 to ¥341,594 million for the year ended March 31, 2018 primarily due to lower performance in rates products as a result of lower client activity because of low volatility in the markets. In our Equities business, Net revenue increased from ¥232,321 million for the year ended March 31, 2017 to ¥261,603 million for the year ended March 31, 2018 despite losses recognized in connection with a specific margin loan. Our revenue increased year on year mainly due to clients activities recovered in the active stock market throughout the year.

 

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The net revenue figures in Global Markets discussed are non-GAAP financial measures prepared on a management accounting basis that are a useful supplement to financial information of our Wholesale segment. We disclose these measures to show the performance of Global Markets as an individual business line, which we believe can help enhance the understanding of underlying trends in Global Markets.

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 decreased by 9% from ¥112,136 million for the year ended March 31, 2018 to ¥102,344 million for the year ended March 31, 2019, despite the contribution from M&A and ECM, such as acquisition of Shire Plc by Takeda Pharmaceutical Co. and IPO of Softbank Corp on the back of successful collaboration across regions and divisions.

Net revenue increased by 7% from ¥105,046 million for the year ended March 31, 2017 to ¥112,136 million for the year ended March 31, 2018, primarily due to an increase in large M&A transactions in Japan despite losses recognized in connection with a specific margin loan.

The net revenue figures in Investment Banking discussed are non-GAAP financial measures prepared on a management accounting basis that we believe are a useful supplement to financial information of our Wholesale segment. We disclose these measures to show the performance of Investment Banking as an individual business line, which we believe can help enhance the understanding of underlying trends in Investment Banking.

Other Operating Results

Other operating results include net gain (loss) related to economic hedging transactions, realized gain on investments in equity securities held for operating purposes, equity in earnings of affiliates, corporate items, and other financial adjustments. See Note 22 “Segment and geographic information” in our consolidated financial statements included within this annual report.

Income (loss) before income taxes in Other operating results were ¥37,607 million for the year ended March 31, 2017, ¥56,365 million for the year ended March 31, 2018 and ¥(2,773) million for the year ended March 31, 2019.

Other operating results for the year ended March 31, 2019 include the negative impact of our own creditworthiness on derivative liabilities which resulted in gains of ¥183 million and losses from changes in counterparty credit spreads of ¥725 million.

Other operating results for the year ended March 31, 2018 include the positive impact of our own creditworthiness on derivative liabilities which resulted in losses of ¥630 million and gains from changes in counterparty credit spreads of ¥6,846 million.

Other operating results for the year ended March 31, 2017 include the positive impact of our own creditworthiness on derivative liabilities which resulted in losses of ¥16,574 million and gains from changes in counterparty credit spreads of ¥8,756 million.

Summary of Regional Contribution

For a summary of our net revenue, income (loss) before income taxes and long-lived assets by geographic region, see Note 22 “Segment and geographic information” in our consolidated financial statements included in this annual report.

 

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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 19 “Regulatory requirements” in our consolidated financial statements included in this annual report.

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.

Cyber Security Incident

In June 2018, one of our foreign subsidiaries experienced a cyber incident that resulted in the unauthorized access to certain of its systems including client information. We may suffer financial loss through reputational damage, legal liability and enforcement actions against us, and expect to incur increased costs for our operations generally, resulting from and in connection with the remediation of this incident and to strengthen and enhance cyber security within other Nomura group companies.

Critical Accounting Policies and Estimates

Use of estimates

In preparing the consolidated financial statements included in this annual report, management makes estimates regarding certain financial instrument and investment valuations, the outcome of litigation and tax examinations, the recovery of the carrying value of goodwill, the allowance for doubtful accounts, the realization of deferred tax assets and other matters that affect the reported amounts of assets and liabilities as well as the disclosures in the consolidated financial statements. Estimates, by their nature, are based on judgment and available information. Therefore, actual results may differ from estimates, which could have a material impact on the consolidated financial statements, and it is possible that such adjustments could occur in the near term.

Fair value for financial instruments

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

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

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

Level 1:

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

 

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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.

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

Level 3 financial assets as a proportion of total financial assets, carried at fair value on a recurring basis were 5% as of March 31, 2019 as listed below:

 

     Billions of yen  
     March 31, 2019  
     Level 1      Level 2      Level 3      Counterparty
and Cash
Collateral

Netting
    Total  

Financial assets measured at fair value (Excluding derivative assets)

   ¥ 6,932      ¥ 8,313      ¥ 627      ¥ —       ¥ 15,872  

Derivative assets

     16        14,786        127        (14,077     852  

Total

   ¥ 6,948      ¥ 23,099      ¥ 754      ¥ (14,077   ¥ 16,724  

See Note 2 “Fair value measurements” in our consolidated financial statements included in this annual report.

Derivative contracts

We use a variety of derivative financial instruments including futures, forwards, swaps and options, for trading and non-trading purposes. All derivatives are carried at fair value, with changes in fair value 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.

 

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Derivative assets and liabilities with the same counterparty documented under a master netting agreement are offset in the consolidated balance sheets where the specific criteria defined by ASC 210-20Balance Sheet—Offsetting” and ASC 815 “Derivatives and Hedging” are met. These criteria include requirements around the legal enforceability of such close-out and offset rights under the master netting agreement. In addition, fair value amounts recognized for the right to reclaim cash collateral (a receivable) and the obligation to return cash collateral (a payable) are also offset against net derivative liabilities and net derivative assets, respectively, where certain additional criteria are met.

Derivative contracts consist of listed derivatives and OTC derivatives. The fair value of listed derivatives are determined based on quoted market prices or valuation models. OTC derivatives are valued using valuation models. Listed derivative and OTC derivative assets and liabilities after netting are shown below:

 

     Billions of yen  
     March 31, 2018  
     Assets      Liabilities  

Listed derivatives

   ¥ 74      ¥ 146  

OTC derivatives

     950        588  
  

 

 

    

 

 

 
   ¥ 1,024      ¥    734  
  

 

 

    

 

 

 
     Billions of yen  
     March 31, 2019  
     Assets      Liabilities  

Listed derivatives

   ¥ 103      ¥ 241  

OTC derivatives

     749        574  
  

 

 

    

 

 

 
   ¥ 852      ¥ 815  
  

 

 

    

 

 

 

The following table presents the fair value of OTC derivative assets and liabilities as of March 31, 2019 by remaining contractual maturity.

 

     Billions of yen  
     March 31, 2019  
     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

   ¥ 1,246      ¥ 1,254      ¥ 965      ¥ 648      ¥ 2,896      ¥ (6,260   ¥ 749  

OTC derivative liabilities

     1,370        1,123        779        607        2,531        (5,836     574  

 

(1)

Represents the impact of netting derivative assets with derivative liabilities for the same counterparty across maturity band categories. Derivative assets and derivative liabilities with the same counterparty in the same maturity category are netted within the maturity category. This column also includes cash collateral netting with the same counterparty.

The fair value of derivative contracts includes adjustments for credit risk, both with regards to counterparty credit risk on positions held and our own creditworthiness on positions issued. We realize gains or losses relating to changes in credit risk on our derivative contracts together with the movements of trading positions, which include derivatives, that are expected to mitigate the above mentioned impact of changes in credit risk.

Goodwill

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

 

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is tested for impairment at a reporting unit level during the fourth quarter of each fiscal year, or more frequently during 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%) that a reporting unit’s fair value is less than its carrying amount. If such assessment indicates fair value is not less than the carrying value, the reporting unit 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 reporting unit is below its carrying value, a quantitative two-step impairment test is then performed.

In the first step, the current estimated fair value of the reporting unit is compared with its carrying value, including goodwill. If the fair value is less than the carrying value, then a second step is performed. In the second step, the implied current fair value of the reporting unit’s goodwill is determined by comparing the fair value of the reporting unit to the fair value of the net assets of the reporting unit, as if the reporting unit were being acquired in a business combination. An impairment loss is recognized if the carrying value of goodwill exceeds its implied current fair value.

For the year ended March 31, 2019, Nomura recognized impairment losses on goodwill of ¥81,372 million within the Wholesale segment. Nomura performed an impairment test based on recent Wholesale performance and changes in the operating environment, and impaired goodwill within the Wholesale segment. As a result, the balance of goodwill within the Wholesale segment as of March 31, 2019 was ¥nil. These impairment losses were recorded within Non-interest expense—Other in the consolidated statements of income. The fair values were determined based on a discounted cash flow method.

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 leveraged buy-ins. As this type of financing is usually initially provided through a commitment, we have both funded and unfunded exposures on these transactions.

The following table sets forth our exposure to leveraged finance by geographic location of the target company as of March 31, 2019.

 

     Millions of yen  
     March 31, 2019  
     Funded      Unfunded      Total  

Europe

   ¥ 12,223      ¥ 96,388      ¥ 108,611  

Americas

     10,926        191,343        202,269  

Asia and Oceania

     6,997        3,015        10,012  
  

 

 

    

 

 

    

 

 

 

Total

   ¥ 30,146      ¥ 290,746      ¥ 320,892  
  

 

 

    

 

 

    

 

 

 

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. In

 

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

For further discussion on Nomura’s involvement with variable interest entities, see Note 7 “Securitizations and Variable Interest Entities” in our consolidated financial statements included in this annual report.

Accounting Developments

See Note 1 “Summary of accounting policies: New accounting pronouncements adopted during the current year” in our consolidated financial statements included in this annual report.

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, respectively, in the consolidated balance sheets as of March 31, 2019.

 

     Millions of yen  
     March 31, 2019  

Deferred tax assets

  

Depreciation, amortization and valuation of fixed assets

   ¥ 20,008  

Investments in subsidiaries and affiliates

     25,243  

Valuation of financial instruments

     71,806  

Accrued pension and severance costs

     29,711  

Other accrued expenses and provisions

     44,803  

Operating losses

     369,286  

Other

     9,213  
  

 

 

 

Gross deferred tax assets

     570,070  

LessValuation allowances

     (444,916
  

 

 

 

Total deferred tax assets

     125,154  
  

 

 

 

Deferred tax liabilities

  

Investments in subsidiaries and affiliates

     133,936  

Valuation of financial instruments

     41,770  

Undistributed earnings of foreign subsidiaries

     2,039  

Valuation of fixed assets

     10,109  

Other

     6,843  
  

 

 

 

Total deferred tax liabilities

     194,697  
  

 

 

 

Net deferred tax assets (liabilities)

   ¥ (69,543
  

 

 

 

Calculation method of deferred tax assets

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

 

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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 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, 2019, our liquidity portfolio was ¥4,870.5 billion which sufficiently met liquidity requirements under the stress scenarios.

 

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The following table presents a breakdown of our liquidity portfolio by type of financial assets as of March 31, 2018 and 2019 and averages maintained for the years ended March 31, 2018 and 2019. Yearly averages are calculated using month-end amounts.

 

     Billions of yen  
     Average for
year ended
March 31, 2018
     March 31,
2018
     Average for
year ended
March 31, 2019
     March 31,
2019
 

Cash, cash equivalents and time deposits(1)

   ¥ 2,116.6      ¥ 1,902.9      ¥ 2,280.3      ¥ 2,113.1  

Government debt securities

     2,393.8        2,354.7        2,553.0        2,424.6  

Others(2)

     237.1        370.8        301.1        332.8  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liquidity portfolio

   ¥ 4,747.5      ¥ 4,628.4      ¥ 5,134.4      ¥ 4,870.5  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(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, 2018 and 2019 and averages maintained for the years ended March 31, 2018 and 2019. Yearly averages are calculated using month-end amounts.

 

     Billions of yen  
     Average for
year ended
March 31, 2018
     March 31,
2018
     Average for
year ended
March 31, 2019
     March 31,
2019
 

Japanese Yen

   ¥ 1,498.8      ¥ 1,309.6      ¥ 1,696.8      ¥ 1,570.7  

U.S. Dollar

     2,160.4        2,103.6        2,231.0        1,961.7  

Euro

     629.7        690.4        734.0        898.8  

British Pound

     308.4        379.9        325.2        265.7  

Others(1)

     150.2        144.9        147.4        173.6  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liquidity portfolio

   ¥ 4,747.5      ¥ 4,628.4      ¥ 5,134.4      ¥ 4,870.5  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(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 19 “Regulatory requirements” in our consolidated financial statements included within this annual report.

The following table presents a breakdown of our liquidity portfolio by entity as of March 31, 2018 and 2019.

 

     Billions of yen  
     March 31, 2018      March 31, 2019  

NHI and NSC(1)

   ¥ 901.3      ¥ 1,142.9  

Major broker-dealer subsidiaries

     2,538.1        2,473.5  

Bank subsidiaries(2)

     719.4        799.4  

Other affiliates

     469.6        454.7  
  

 

 

    

 

 

 

Total liquidity portfolio

   ¥ 4,628.4      ¥ 4,870.5  
  

 

 

    

 

 

 

 

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(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.

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

In addition to our liquidity portfolio, we had ¥2,268.1 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, 2019 was ¥7,138.6 billion, which represented 283.4% of our total unsecured debt maturing within one year.

 

     Billions of yen  
     March 31, 2018      March 31, 2019  

Net liquidity value of other unencumbered assets

   ¥ 2,167.9      ¥ 2,268.1  

Liquidity portfolio

     4,628.4        4,870.5  
  

 

 

    

 

 

 

Total

   ¥ 6,796.3      ¥ 7,138.6  
  

 

 

    

 

 

 

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 43.6% of total long-term debt outstanding as of March 31, 2019 from 43.3% as of March 31, 2018.

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.

 

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The following table presents an analysis of our short-term unsecured debt by type of financial liability as of March 31, 2018 and 2019.

 

     Billions of yen  
     March 31, 2018      March 31, 2019  

Short-term bank borrowings

   ¥ 143.6      ¥ 107.0  

Other loans

     176.2        231.4  

Commercial paper

     179.3        313.0  

Deposits at banking entities

     925.8        1,149.1  

Certificates of deposit

     11.1        11.1  

Debt securities maturing within one year

     671.0        707.2  
  

 

 

    

 

 

 

Total short-term unsecured debt

   ¥ 2,107.0      ¥ 2,518.8  
  

 

 

    

 

 

 

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, and Nomura International Funding Pte. 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, 2018 and 2019.

 

     Billions of yen  
     March 31, 2018      March 31, 2019  

Long-term deposits at banking entities

   ¥ 214.5      ¥ 232.5  

Long-term bank borrowings

     2,567.6        2,727.5  

Other loans

     118.6        87.9  

Debt securities(1)

     2,318.2        3,435.6  
  

 

 

    

 

 

 

Total long-term unsecured debt

   ¥ 5,218.9      ¥ 6,483.5  
  

 

 

    

 

 

 

 

(1)

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

 

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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 4.0 years as of March 31, 2019. 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 8.0 years as of March 31, 2019. The average maturity of our entire long-term debt with maturities longer than one year including plain vanilla debt securities and borrowings, was 6.0 years as of March 31, 2019.

 

 

LOGO

3.4    Secured Funding

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

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.

 

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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, 2019, our liquidity portfolio exceeded net cash outflows under the stress scenarios described above.

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

 

   

No liquidation of assets;

 

   

No ability to issue additional unsecured funding;

 

   

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

 

   

Potential buybacks of our outstanding debt;

 

   

Loss of secured funding lines particularly for less liquid assets;

 

   

Fluctuation of funding needs under normal business circumstances;

 

   

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

 

   

Widening of haircuts on outstanding repo funding;

 

   

Additional collateralization requirements of clearing banks and depositories;

 

   

Drawdown on loan commitments;

 

   

Loss of liquidity from market losses;

 

   

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

 

   

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

 

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6.    Contingency Funding Plan

We have developed a detailed contingency funding plan to integrate liquidity risk control into our comprehensive risk management strategy and to enhance the quantitative aspects of our liquidity risk control procedures. As a part of our Contingency Funding Plan (“CFP”), we have developed an approach for analyzing and quantifying the impact of any liquidity crisis. This allows us to estimate the likely impact of both Nomura-specific and market-wide events; and specifies the immediate action to be taken to mitigate any risk. The CFP lists details of key internal and external parties to be contacted and the processes by which information is to be disseminated. This has been developed at a legal entity level in order to capture specific cash requirements at the local level—it assumes that our parent company does not have access to cash that may be trapped at a subsidiary level due to regulatory, legal or tax constraints. We periodically test the effectiveness of our funding plans for different Nomura-specific and market-wide events. We also have access to central banks including, but not exclusively, the 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, 2019 was 198.4%, and Nomura was compliant with requirements of the above notices. As for the NSFR, it is not yet implemented in Japan.

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 years ended March 2018 and 2019, we recorded net cash outflows from operating activities and investing activities as discussed in the comparative analysis below.

 

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The following table presents the summary information on our consolidated cash flows for the years ended March 31, 2018 and 2019.

 

     Billions of yen  
     Year Ended March 31  
     2018     2019  

Net cash used in operating activities

   ¥ (445.7   ¥ (361.2

Net income (loss)

     224.3       (94.7

Trading assets and private equity investments

     (239.3     925.4  

Trading liabilities

     227.3       (143.1

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

     (453.2     (3,274.9

Securities borrowed, net of securities loaned

     763.3       1,987.3  

Other, net

     (968.0     238.8  

Net cash used in investing activities

     (56.2     (112.5

Net cash provided by financing activities

     373.2       761.2  

Long-term borrowings, net

     350.0       516.7  

Increase (decrease) in deposits received at banks, net

     (13.3     257.5  

Other, net

     36.5       (13.0

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

     (53.5     44.7  
  

 

 

   

 

 

 

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

     (182.2     332.3  

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

     2,537.1       2,354.9  
  

 

 

   

 

 

 

Cash, cash equivalents, restricted cash and restricted cash equivalents at end of the year

   ¥ 2,354.9     ¥ 2,687.1  
  

 

 

   

 

 

 

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, 2019, our cash, cash equivalents, restricted cash and restricted cash equivalents increased by ¥332.3 billion to ¥2,687.1 billion. Net cash of ¥761.2 billion was provided by financing activities due to net cash inflows of ¥516.7 billion from Long-term borrowings. As part of trading activities, while there were net cash inflows of ¥782.2 billion due to a decrease in Trading assets and Private equity investments in combination with cash outflows due to a decrease in Trading liabilities, they were offset by net cash outflows of ¥1,287.5 billion from repo transactions and securities borrowed and loaned transactions such as Securities purchased under agreements to resell, Securities sold under agreements to repurchase, and Securities borrowed, net of Securities loaned. As a result, net cash of ¥361.2 billion was used in operating activities.

For the year ended March 31, 2018, our cash, cash equivalents, restricted cash and restricted cash equivalents decreased by ¥182.2 billion to ¥2,354.9 billion. Net cash of ¥373.2 billion was provided by financing activities due to net cash inflows of ¥350.0 billion from Long-term borrowings. As part of trading activities, while there were net cash outflows of ¥12.0 billion from cash outflows due to an increase in Trading assets and Private equity investments in combination with cash inflows due to an increase in Trading liabilities, they were offset by ¥310.1 billion of net cash inflows from repo transactions and securities borrowed and loaned transactions such as Securities purchased under agreements to resell, Securities sold under agreements to repurchase and Securities borrowed, net of Securities loaned. As a result, net cash of ¥445.7 billion was used in operating activities.

 

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Balance Sheet and Financial Leverage

Total assets as of March 31, 2019, were ¥40,969.4 billion, an increase of ¥625.5 billion compared with ¥40,343.9 billion as of March 31, 2018, reflecting primarily an increase in Securities purchased under agreements to resell. Total liabilities as of March 31, 2019, were ¥38,288.6 billion, an increase of ¥744.5 billion compared with ¥37,544.1 billion as of March 31, 2018, reflecting primarily an increase in Long-term borrowings. NHI shareholders’ equity as of March 31, 2019 was ¥2,631.1 billion, a decrease of ¥118.3 billion compared with ¥2,749.3 billion as of March 31, 2018, primarily due to an decrease in Retained earnings.

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, 2018 and 2019.

 

     Billions of yen, except ratios  
     March 31  
           2018                  2019        

NHI shareholders’ equity

   ¥ 2,749.3      ¥ 2,631.1  

Total assets

     40,343.9        40,969.4  

Adjusted assets(1)

     24,106.2        23,662.5  

Leverage ratio(2)

     14.7 x        15.6 x  

Adjusted leverage ratio(3)

     8.8 x        9.0 x  

 

(1)

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

 

     Billions of yen  
     March 31  
           2018                  2019        

Total assets

   ¥ 40,343.9      ¥ 40,969.4  

Less:

     

Securities purchased under agreements to resell

     9,853.9        13,194.5  

Securities borrowed

     6,383.8        4,112.4  
  

 

 

    

 

 

 

Adjusted assets

   ¥ 24,106.2      ¥ 23,662.5  
  

 

 

    

 

 

 

 

(2)

Equals total assets divided by NHI shareholders’ equity.

(3)

Equals adjusted assets divided by NHI shareholders’ equity.

Total assets increased by 1.6% reflecting primarily an increase in Securities purchased under agreements to resell. Total NHI shareholders’ equity decreased by 4.3% reflecting primarily a decrease in Retained earnings. As a result, our leverage ratio increased from 14.7 times as of March 31, 2018 to 15.6 times as of March 31, 2019.

Adjusted assets decreased primarily due to a decrease in Trading assets. As a result, our adjusted leverage ratio was 8.8 times as of March 31, 2018 and 9.0 times as of March 31, 2019.

 

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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 ¥3 per share to shareholders of record as of September 30, 2018 and have decided to pay a dividend of ¥3 per share to shareholders of record as of March 31, 2019. As a result, the total annual dividend will be ¥6 per share.

The following table sets forth 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  

2014

   ¥ —        ¥ 8.00      ¥ —        ¥ 9.00      ¥ 17.00  

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  

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

 

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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, 2019, our common equity Tier 1 capital ratio (common equity Tier 1 capital divided by risk-weighted assets) is 17.11%, Tier 1 capital ratio (Tier 1 capital divided by risk-weighted assets) is 18.28% and consolidated capital adequacy ratio (total capital divided by risk-weighted assets) is 18.60% and we were 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, 2019 is 7.61% for the common equity Tier 1 capital ratio, 9.11% for the Tier 1 capital ratio and 11.11% for the consolidated capital adequacy ratio).

The following table presents the Company’s consolidated capital adequacy ratios as of March 31, 2018 and March 31, 2019.

 

     Billions of yen, except ratios  
     March 31  
     2018     2019  

Common equity Tier 1 capital

   ¥ 2,500.0     ¥ 2,439.7  

Tier 1 capital

     2,666.4       2,605.9  

Total capital

     2,732.5       2,651.9  

Risk-Weighted Assets

    

Credit risk-weighted assets

     7,736.3       7,527.4  

Market risk equivalent assets

     4,748.3       4,211.1  

Operational risk equivalent assets

     2,637.7       2,513.1  
  

 

 

   

 

 

 

Total risk-weighted assets

   ¥ 15,122.3     ¥ 14,251.6  
  

 

 

   

 

 

 

Consolidated Capital Adequacy Ratios

    

Common equity Tier 1 capital ratio

     16.53     17.11

Tier 1 capital ratio

     17.63     18.28

Consolidated capital adequacy ratio

     18.06     18.60

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

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

 

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Consolidated Leverage Ratio Requirements

In March 2015, the FSA set out the publication of “Consolidated Leverage Ratio prescribed by Commissioner of Financial Services Agency in accordance with Article 3, paragraph 1 of Pillar 3 Notice” (2015 FSA Regulatory Notice No. 11), as well as 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”). In March 2019, the FSA set out requirements for the calculation and disclosure and minimum requirement of 3% of a consolidated leverage ratio, through 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”), as well as amendments to revising “Notice on Pillar 3 Disclosure”. We started calculating and disclosing a consolidated leverage ratio from March 31, 2015 in accordance with the Notices. And we have 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 receives and reviews this consolidated leverage ratio on a regular basis. As of March 31 2019, our consolidated leverage ratio was 5.03%.

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 a 30-day liquidity coverage ratio as well as a longer-term structural liquidity ratio. 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 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 the G-SIBs including the recovery and resolution plan. The group of G-SIBs have been updated annually and published by the FSB each November. Since November 2011, we have not been designated as a G-SIBs. On the other 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 for D-SIBs. In December 2015, the FSA identified us as a D-SIB and required additional capital charge of 0.5% after March 2016, with 3-year transitional arrangement.

 

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In November 2015, the FSB issued the final TLAC standard for G-SIBs. The TLAC standard has been designed so that failing G-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 Japanese G-SIBs and, in April 2018, revised such policy to apply the TLAC requirements in Japan not only to Japanese G-SIBs but also to Japanese D-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 Japanese G-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 a G-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 basis considering the actual condition of the relevant the TLAC Covered SIBs in crisis.

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.

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.

 

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As of May 31, 2019, 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    A-

Moody’s Investors Service

   —      Baa1

Fitch Ratings

   F1    A-

Rating and Investment Information, Inc.

   a-1    A+

Japan Credit Rating Agency, Ltd.

   —      AA-

Nomura Securities Co., Ltd.

   Short-term Debt    Long-term Debt

S&P Global Ratings

   A-1    A

Moody’s Investors Service

   P-2    A3

Fitch Ratings

   F1    A-

Rating and Investment Information, Inc.

   a-1    A+

Japan Credit Rating Agency, Ltd.

   —      AA-

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.

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. Off-Balance Sheet Arrangements.

Off-balance sheet entities

In the normal course of business, we engage in a variety of off-balance sheet arrangements with off-balance sheet entities which may have an impact on Nomura’s future financial position and performance.

Off-balance sheet arrangements with off-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;

 

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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 7 “Securitizations and Variable Interest Entities” in our consolidated financial statements included in this annual report.

F. 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 our office space, certain employees’ residential facilities and other facilities in Japan and overseas primarily under cancellable lease agreements which are customarily renewed upon expiration;

 

   

We lease certain equipment and facilities in Japan and overseas under non-cancellable operating lease agreements.

Capital lease commitments:

 

   

We lease certain equipment and facilities in Japan and overseas under capital lease agreements.

 

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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 9 “Leases” in our consolidated financial statements contains further detail on our operating leases and capital leases. Note 11 “Borrowings” in our consolidated financial statements contains further detail on our short-term and long-term borrowing obligations and Note 21 “Commitments, contingencies and guarantees” in our consolidated financial statements included in this annual report contains further detail on our other 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 basis. The amount of collateral obtained, if deemed necessary by us upon extension of credit, is based on management’s credit evaluation of the counterparty.

The following table presents information regarding amounts and timing of our future contractual obligations and contingent commitments as of March 31, 2019.

 

    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

  ¥ 5,764     ¥ 11     ¥ 335     ¥ 5,417     ¥ 1  

Long-term borrowings(1)

    7,891,271       801,209       1,661,322       1,333,816       4,094,924  

Contractual interest payments(2)

    872,708       124,898       189,528       144,279       414,003  

Operating lease commitments

    106,553       16,207       22,309       15,324       52,713  

Capital lease commitments(3)

    42,197       3,862       7,898       7,600       22,837  

Purchase obligations(4)

    69,003       21,985       34,310       12,708       —    

Commitments to extend credit(5)

    2,694,368       1,737,305       97,933       225,151       633,979  

Commitments to invest

    14,413       865       2       362       13,184  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  ¥ 11,696,277     ¥ 2,706,342     ¥ 2,013,637     ¥ 1,744,657     ¥ 5,231,641  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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(1)

The amounts disclosed within long-term borrowings exclude financial liabilities recognized within long-term borrowings as a result of transfers of financial assets that are accounted for as financings rather than sales in accordance with ASC 860. These are not borrowings issued for our own funding purposes and therefore do not represent actual contractual obligations by us to deliver cash.

(2)

The amounts represent estimated future interest payments related to long-time borrowings based on the period through to their maturity and applicable interest rates as of March 31, 2019.

(3)

The total contractual amount of capital lease commitments is the total minimum lease payments before deducting interest.

(4)

The minimum contractual obligations under enforceable and legally binding contracts that specify all significant terms. Amounts exclude obligations that are already reflected on our consolidated balance sheets as liabilities or payables.

(5)

Contingent liquidity facilities to central clearing counterparties are included.

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 ¥1,071 billion for reverse repurchase agreements and ¥719 billion for repurchase agreements as of March 31, 2019.

 

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Item 6. Directors, Senior Management and Employees

A. Directors and Senior Management.

Directors

The following table provides information about Directors of the Company as of June 25, 2019.

 

Name

(Date of Birth)

  

Responsibilities and Status within Nomura/

Other Principal Business Activities

  

Business Experience

Nobuyuki Koga

(Aug. 22, 1950)

  

Director

Chairman of the Board of Directors

Member of the Nomination Committee

Member of the Compensation Committee

Director of Nomura Securities Co., Ltd.

Representative Director and President of Kanagawa Kaihatsu Kanko Co., Ltd.

   Apr. 1974    Joined the Company
   Jun. 1995    Director of the Company
   Apr. 1999    Managing Director of the Company
   Jun. 2000    Director and Deputy President of the Company
   Oct. 2001   

Director and Deputy President of the Company

Director and Deputy President of Nomura Securities Co., Ltd.

   Apr. 2003   

Director and President of the Company

Director and President of Nomura Securities Co., Ltd.

   Jun. 2003   

Director, President & CEO of the Company

Director and Executive Officer and President of Nomura Securities Co., Ltd.

   Apr. 2008   

Director and Representative Executive Officer of the Company

Director and Chairman of Nomura Securities Co., Ltd.

   Jun. 2008    Director and Chairman of Nomura Securities Co., Ltd.
   Jun. 2011   

Director and Chairman of the Company

Director and Chairman of Nomura Securities Co., Ltd.

   Apr. 2017   

Director and Chairman of the Company (Current)

Director of Nomura Securities Co., Ltd. (Current)

Koji Nagai

(Jan. 25, 1959)

  

Director, Representative Executive Officer, President and Group CEO

Director and Chairman of Nomura Securities Co., Ltd.

   Apr. 1981    Joined the Company
   Apr. 2003    Director of Nomura Securities Co., Ltd.
   Jun. 2003    Senior Managing Director of Nomura Securities Co., Ltd.
   Apr. 2007    Executive Managing Director of Nomura Securities Co., Ltd.

 

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Name

(Date of Birth)

  

Responsibilities and Status within Nomura/

Other Principal Business Activities

  

Business Experience

      Oct. 2008    Senior Corporate Managing Director of Nomura Securities Co., Ltd.
      Apr. 2009    Executive Managing Director and Executive Vice President of Nomura Securities Co., Ltd.
      Apr. 2011    Co-COO and Deputy President of Nomura Securities Co., Ltd.
      Apr. 2012   

Senior Managing Director of the Company

Director and President of Nomura Securities Co., Ltd.

      Aug. 2012   

Representative Executive Officer & Group CEO of the Company

Director and President of Nomura Securities Co., Ltd.

      Jun. 2013   

Director, Representative Executive Officer & Group CEO of the Company

Director and President of Nomura Securities Co., Ltd.

      Apr. 2017   

Director, Representative Executive Officer, President & Group CEO of the Company (Current)

Director and Chairman of Nomura Securities Co., Ltd. (Current)

Shoichi Nagamatsu

(Jul. 6, 1958)

  

Director, Representative Executive Officer and Deputy President

   Apr. 1982    Joined the Company
   Apr. 2004    Senior Managing Director of Nomura Securities Co., Ltd.
   Oct. 2008   

Executive Managing Director of the Company

Senior Managing Director of Nomura Securities Co., Ltd.

   Jun. 2010   

Senior Corporate Managing Director of the Company

Senior Corporate Managing Director of Nomura Securities Co., Ltd.

   Apr. 2012    Senior Corporate Managing Director of Nomura Securities Co., Ltd.
   Jun. 2012    Representative Executive Officer and Senior Corporate Managing Director of Nomura Securities Co., Ltd.

 

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Name

(Date of Birth)

  

Responsibilities and Status within Nomura/

Other Principal Business Activities

  

Business Experience

      Apr. 2013   

Executive Managing Director and Chief of Staff of the Company

Executive Managing Director and Executive Vice President of Nomura Securities Co., Ltd.

      Apr. 2016   

Executive Managing Director and Chief of Staff of the Company

Representative Executive Officer and Deputy President of Nomura Securities Co., Ltd.

      Apr. 2017   

Representative Executive Officer, Deputy President and Chief of Staff of the Company

Director of Nomura Securities Co., Ltd.

      Apr. 2018   

Representative Executive Officer and Deputy President of the Company

Director of Nomura Securities Co., Ltd.

      Jun. 2018   

Director, Representative Executive Officer and Deputy President of the Company

Director of Nomura Securities Co., Ltd.

      Apr. 2019    Director, Representative Executive Officer and Deputy President of the Company (Current)

Hisato Miyashita

(Dec. 26, 1958)

  

Director

Member of the Audit Committee (full-time)

Statutory Auditor of Nomura Financial Products & Services, Inc.

   Jul. 1987    Joined the Company
   Jun. 1993    Joined Union Bank of Switzerland (currently, UBS)
   Aug. 1996    Joined Bankers Trust Asia Securities Ltd.
   Apr. 1998    Joined Credit Suisse First Boston Securities (Japan) Limited
   Dec. 1999    Joined Nikko Citigroup Limited (currently, Citigroup Global Markets Japan Inc.)
   Mar. 2005    Executive Officer of Nikko Citigroup Limited, Internal Control Supervisory Manager
   Jul. 2009    Managing Director of Group Compliance Department of the Company
   Apr. 2012    Senior Managing Director of the Company, Head of Wholesale Compliance

 

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Name

(Date of Birth)

  

Responsibilities and Status within Nomura/

Other Principal Business Activities

  

Business Experience

      Jun. 2012    Senior Managing Director of the Company, Group Compliance Head Senior Managing Director of Nomura Securities Co., Ltd.
      Apr. 2013    Senior Managing Director of the Company, Group Compliance Head Representative Executive Officer of Nomura Securities Co., Ltd., Internal Control Supervisory Manager
      Apr. 2015    Senior Managing Director of the Company, Deputy Chief of Staff and Group Compliance Head Representative Executive Officer and Senior Corporate Managing Director of Nomura Securities Co., Ltd., Internal Control Supervisory Manager
      Apr. 2016    Advisor of the Company
      Jun. 2016    Director of the Company (Current)

Hiroshi Kimura

(Apr. 23, 1953)

  

Outside Director

Chairman of the Nomination Committee

Chairman of the Compensation Committee

Honorary Company Fellow of Japan Tobacco Inc.

Outside Director of IHI Corporation

   Apr. 1976    Joined Japan Tobacco and Salt Public Corporation (currently, Japan Tobacco Inc.) (“JT”)
   Jun. 1999    Director of JT
   Jun. 2001    Resigned as Director of JT
   Jun. 2005    Director of JT
   Jun. 2006    President and CEO and Representative Director of JT
   Jun. 2012    Chairman of the Board of JT
   Jun. 2014    Special Advisor of JT
   Jun. 2015    Outside Director of the Company (Current)
   Jul. 2016    Advisor of JT
   Mar. 2018    Honorary Company Fellow of JT (Current)

Kazuhiko Ishimura

(Sep. 18, 1954)

  

Outside Director

Member of the Nomination Committee

Member of the Compensation Committee

Director & Chairman of AGC Inc.

Outside Director of TDK Corporation

Outside Director of IHI Corporation

   Apr. 1979    Joined Asahi Glass Co., Ltd. (currently, AGC Inc.) (“AGC”)
   Jan. 2006    Executive Officer and GM of Kansai Plant of AGC
   Jan. 2007    Senior Executive Officer and GM of Electronics & Energy General Division of AGC
      Mar. 2008    Representative Director and President & COO of AGC
      Jan. 2010    Representative Director and President & CEO of AGC
      Jan. 2015    Representative Director & Chairman of AGC

 

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Name

(Date of Birth)

  

Responsibilities and Status within Nomura/

Other Principal Business Activities

  

Business Experience

      Jan. 2018    Director & Chairman of AGC (Current)
      Jun. 2018    Outside Director of the Company (Current)

Noriaki Shimazaki

(Aug. 19, 1946)

  

Outside Director

Chairman of the Audit Committee

Director of Nomura Securities Co., Ltd.

Outside Director of Loginet Japan Co., Ltd.

   Apr. 1969    Joined Sumitomo Corporation
   Jun. 1998    Director of Sumitomo Corporation
   Apr. 2002    Representative Director and Managing Director of Sumitomo Corporation
   Jan. 2003    Member of the Business Accounting Council of the Financial Services Agency
   Apr. 2004    Representative Director and Senior Managing Executive Officer of Sumitomo Corporation
   Apr. 2005    Representative Director and Executive Vice President of Sumitomo Corporation
   Jan. 2009    Trustee of the IASC (currently, IFRS Foundation)
   Jul. 2009    Special Advisor of Sumitomo Corporation
   Jun. 2011   

Director of the Financial Accounting Standards Foundation

Chairman of Self-regulation Board and Public Governor of the Japan Securities Dealers Association

      Sep. 2013   

Advisor of the IFRS Foundation Asia-Oceania Office (Current)

Advisor of the Japanese Institute of Certified Public Accountants (Current)

      Jun. 2016   

Outside Director of the Company (Current)

Director of Nomura Securities Co., Ltd. (Current)

Mari Sono

(Feb. 20, 1952)

  

Outside Director

Member of the Audit Committee

   Oct. 1976    Joined NISSHIN Audit Corporation(*)
   Mar. 1979    Registered as Certified Public Accountant
   Nov. 1988    Partner of CENTURY Audit Corporation(*)

 

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Name

(Date of Birth)

  

Responsibilities and Status within Nomura/

Other Principal Business Activities

  

Business Experience

      Nov. 1990    Member of “Certified Public Accountant Examination System Subcommittee”, Certified Public Accountant Examination and Investigation Board, Ministry of Finance
      Apr. 1992    Member of “Business Accounting Council”, Ministry of Finance
      Dec. 1994    Senior Partner, CENTURY Audit Corporation(*)
      Oct. 2002    Member of Secretariat of the Information Disclosure, Cabinet Office (currently, Secretariat of the Information Disclosure and Personal Information Protection Review Board, Ministry of Internal Affairs and Communications)
      Apr. 2005    External Comprehensive Auditor, Tokyo
      Jul. 2008    Senior Partner of Ernst & Young ShinNihon LLC
      Aug. 2012    Retired Ernst & Young ShinNihon LLC
      Dec. 2013    Commissioner of the Securities and Exchange Surveillance Commission
      Jun. 2017    Outside Director of the Company (Current)
         * Each of the corporation is currently Ernst & Young ShinNihon LLC

Michael Lim Choo San

(Sep. 10, 1946)

  

Outside Director

Non-Executive Chairman of Fullerton Healthcare Corporation Limited

Non-Executive Chairman of Nomura Singapore Ltd.

   Aug. 1972    Joined Price Waterhouse, Singapore
   Jan. 1992    Managing Partner of Price Waterhouse, Singapore
   Oct. 1998    Member of the Singapore Public Service Commission (Current)
   Jul. 1999    Executive Chairman of PricewaterhouseCoopers, Singapore
      Sep. 2002    Chairman of the Land Transport Authority of Singapore
      Sep. 2004    Independent Director of Olam International Limited
      Jun. 2011    Outside Director of the Company (Current)

 

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Name

(Date of Birth)

  

Responsibilities and Status within Nomura/

Other Principal Business Activities

  

Business Experience

      Nov. 2011    Chairman of the Accounting Standards Council, Singapore
      Apr. 2013    Chairman of the Singapore Accountancy Commission
      Sep. 2016    Non-Executive Chairman of Fullerton Healthcare Corporation Limited (Current)

Laura Simone Unger

(Jan. 8, 1961)

  

Outside Director

Independent Director of CIT Group Inc.

Independent Director of Navient Corporation

Independent Director of Nomura Securities International, Inc.

   Jan. 1988    Enforcement Attorney of U.S. Securities and Exchange Commission (SEC)
   Oct. 1990    Counsel of U.S. Senate Committee on Banking, Housing, and Urban Affairs
   Nov. 1997    Commissioner of SEC
   Feb. 2001    Acting Chairperson of SEC
   Jul. 2002    Regulatory Expert of CNBC
   May 2003    Independent Consultant of JPMorgan Chase & Co.
   Aug. 2004    Independent Director of CA Inc.
   Jan. 2010    Special Advisor of Promontory Financial Group
   Dec. 2010    Independent Director of CIT Group Inc. (Current)
   Nov. 2014    Independent Director of Navient Corporation (Current)
   Jun. 2018    Outside Director of the Company (Current)

Among the Directors listed above, Hiroshi Kimura, Kazuhiko Ishimura, Noriaki Shimazaki, Mari Sono, Michael Lim Choo San and Laura Simone Unger satisfy the requirements for an “Outside Director” under the Companies Act.

 

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Executive Officers

The following table provides information about the Company’s Executive Officers as of June 25, 2019.

 

Name

(Date of Birth)

  

Responsibilities and Status within Nomura/

Other Principal Business Activities

  

Business Experience

Koji Nagai

(Jan. 25, 1959)

  

See “Directors” under this Item 6.A.

  

See “Directors” under this Item 6.A.

Shoichi Nagamatsu

(Jul. 6, 1958)

  

See “Directors” under this Item 6.A.

  

See “Directors” under this Item 6.A.

Kentaro Okuda

(Nov. 7, 1963)

  

Executive Managing Director and Deputy President

Group Co-COO

   Apr. 1987    Joined the Company
   Apr. 2010    Senior Managing Director of Nomura Securities Co., Ltd.
      Apr. 2012    Senior Corporate Managing Director of Nomura Securities Co., Ltd.
      Aug. 2012   

Senior Corporate Managing Director of the Company

Senior Corporate Managing Director of Nomura Securities Co., Ltd.

      Apr. 2013   

Senior Managing Director of the Company

Senior Corporate Managing Director of Nomura Securities Co., Ltd.

      Apr. 2015   

Senior Managing Director of the Company

Executive Vice President of Nomura Securities Co., Ltd.

      Apr. 2016   

Senior Managing Director of the Company

Executive Managing Director and Executive Vice President of Nomura Securities Co., Ltd.

      Apr. 2017   

Senior Managing Director of the Company

Executive Vice President of Nomura Securities Co., Ltd.

      Apr. 2018   

Executive Managing Director, and Group Co-COO and Head of Americas (based in New York) of the Company

Director, Executive Managing Director and Deputy President of Nomura Securities Co., Ltd.

      Apr. 2019    Executive Managing Director and Deputy President, Group Co-COO of the Company (Current)

 

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Name

(Date of Birth)

  

Responsibilities and Status within Nomura/

Other Principal Business Activities

  

Business Experience

Toshio Morita

(Apr. 17, 1961)

  

Executive Managing Director

Group Co-COO

Representative Director and President of Nomura Securities Co., Ltd.

   Apr. 1985    Joined the Company
   Apr. 2008    Senior Managing Director of Nomura Securities Co., Ltd.
   Oct. 2008    Senior Managing Director of Nomura Securities Co., Ltd.
   Apr. 2010    Senior Corporate Managing Director of Nomura Securities Co., Ltd.
   Apr. 2011    Senior Corporate Managing Director of the Company
   Apr. 2012    Senior Corporate Managing Director of the Company
      Senior Corporate Managing Director of Nomura Securities Co., Ltd.
   Aug. 2012    Executive Managing Director of the Company
      Executive Vice President of Nomura Securities Co., Ltd.
   Apr. 2015    Executive Managing Director of the Company
      Executive Managing Director and Executive Vice President of Nomura Securities Co., Ltd.
   Apr. 2016    Representative Executive Officer and Deputy President of Nomura Securities Co., Ltd.
   Apr. 2017    Executive Managing Director of the Company
      Director, Representative Executive Officer and President of Nomura Securities Co., Ltd.
   Apr. 2018   

Executive Managing Director and Group Co-COO of the Company

Director, Representative Executive Officer and President of Nomura Securities Co., Ltd.

   Apr. 2019   

Executive Managing Director and Group Co-COO of the Company (Current)

Representative Director and President of Nomura Securities Co., Ltd. (Current)

Junko Nakagawa

(Jul. 26, 1965)

  

Executive Managing Director

Head of Asset Management

Representative Director, President and CEO of Nomura Asset Management Co., Ltd.

   Apr. 1988    Joined the Company
   Mar. 2004    Retired Nomura Securities Co., Ltd.
   Jan. 2008    Joined Nomura Healthcare Co., Ltd.
  

 

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Name

(Date of Birth)

  

Responsibilities and Status within Nomura/

Other Principal Business Activities

  

Business Experience

      Apr. 2008    Representative Director and President of Nomura Healthcare Co., Ltd.
      Jun. 2010   

Director of Nomura Healthcare Co., Ltd.

Rejoined Nomura Securities Co., Ltd.

      Apr. 2011   

Executive Managing Director and Chief Financial Officer of the Company

Executive Managing Director and Financial Officer of Nomura Securities Co., Ltd.

      Apr. 2013    Senior Managing Director of the Company
      Apr. 2016   

Senior Managing Director of the Company

Senior Managing Director of Nomura Securities Co., Ltd.

      Apr. 2017    Executive Managing Director and Executive Vice President of Nomura Asset Management Co., Ltd.
      Apr. 2019   

Executive Managing Director and Head of Asset Management of the Company (Current)

Representative Director, President and CEO of Nomura Asset Management Co., Ltd. (Current)

Yuji Nakata

(Jun. 6, 1959)

  

Executive Managing Director

Chief Risk Officer

Representative Director and Deputy President of Nomura Securities Co., Ltd.

   Apr. 1983    Joined the Company
   Apr. 2007    Executive Managing Director of Nomura Securities Co., Ltd.
   Apr. 2008    Executive Managing Director of the Company
   Oct. 2008    Senior Managing Director of the Company
   Nov. 2008    Senior Managing Director of Nomura Securities Co., Ltd.
   Apr. 2012   

Senior Managing Director of the Company

Senior Managing Director of Nomura Securities Co., Ltd.

   Apr. 2014   

Senior Managing Director of the Company

Senior Corporate Managing Director of Nomura Securities Co., Ltd.

 

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Name

(Date of Birth)

  

Responsibilities and Status within Nomura/

Other Principal Business Activities

  

Business Experience

      Apr. 2016   

Executive Managing Director of the Company

Executive Managing Director and Executive Vice President of Nomura Securities Co., Ltd.

      Apr. 2017   

Executive Managing Director, Head of Group Entity Structure and Co-CRO of the Company

Representative Executive Officer and Deputy President of Nomura Securities Co., Ltd.

      Apr. 2019   

Executive Managing Director, Head of Group Entity Structure and Co-CRO of the Company

Representative Director and Deputy President of Nomura Securities Co., Ltd.

      May. 2019   

Executive Managing Director and Chief Risk Officer of the Company (Current)

Representative Director and Deputy President of Nomura Securities Co., Ltd. (Current)

Tomoyuki Teraguchi

(Aug. 4, 1962)

  

Executive Managing Director

Chief Compliance Officer

Representative Director and Executive Vice President of Nomura Securities Co., Ltd.

   Apr. 1986    Joined the Company
   Apr. 2009    Senior Managing Director of Nomura Securities Co., Ltd.
   Apr. 2016   

Senior Managing Director of the Company

Representative Executive Officer of Nomura Securities Co., Ltd.

   Apr. 2017   

Senior Managing Director of the Company

Representative Executive Officer and Senior Corporate Managing Director of Nomura Securities Co., Ltd.

   Apr. 2019   

Executive Managing Director and Chief Compliance Officer of the Company (Current)

Representative Director and Executive Vice President of Nomura Securities Co., Ltd. (Current)

Takumi Kitamura

(Nov. 26, 1966)

  

Executive Managing Director

Chief Financial Officer

Director and Senior Corporate Managing Director of Nomura Securities Co., Ltd.

   Apr. 1990    Joined the Company
   Apr. 2016   

Executive Managing Director and Chief Financial Officer of the Company

Executive Managing Director and Financial Officer of Nomura Securities Co., Ltd.

 

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Name

(Date of Birth)

  

Responsibilities and Status within Nomura/

Other Principal Business Activities

  

Business Experience

      Apr. 2019   

Executive Managing Director and Chief Financial Officer of the Company (Current)

Director and Senior Corporate Managing Director of Nomura Securities Co., Ltd. (Current)

B. Compensation of Statutory Officers

Nomura’s compensation program for statutory officers is outlined as following.

1.    Compensation program

(1) Compensation policy

We have developed our compensation policy for both senior management and employees of the Nomura Group to enable us to achieve sustainable growth, realize a long-term increase in shareholder value, deliver client excellence, compete in a global market and enhance our reputation.

Our compensation policy is based around the following six key themes. It aims to:

 

  1.

align with Nomura values and strategies;

 

  2.

reflect group, divisional and individual performance;

 

  3.

establish appropriate performance measurement with a focus on risk;

 

  4.

align employee and shareholder interests;

 

  5.

establish appropriate compensation structures; and

 

  6.

ensure robust governance and control processes.

(2) Nomura’s compensation framework

Nomura delivers compensation to senior management and employees through fixed and variable components. The key objectives of these components are provided below, together with the specific elements of each component.

 

Compensation

Components

  

Objectives

  

Specific Elements

Fixed Compensation

  

   Rewards individuals for their knowledge, skills, competencies and experiences   

   Base salary
  

   Reflects local labor market standards      
  

   Reflects practices of local labor markets to deliver allowances as a part of fixed compensation to individuals   

 

  

Housing allowances

 

Overtime pay

Variable Compensation

  

   Rewards team and individual performances, and their contribution to results as well as the Company’s strategic and future value   

 

  

Cash bonuses

 

Deferred compensation

  

   Reflects appropriate internal and market-based peer comparisons      
  

   Reflects broad views on compensation, including individual performances, approaches to risk, compliance and cross-divisional cooperation      

Note: Benefits driven by local market regulations and practices are not included in the above.

 

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(3) Determination process for fixed and variable compensations

Fixed and variable compensations are determined based on various aspects such as internal and market-based peer comparisons, local and regional labor market standards and practices, besides some KPIs listed below sections. The total compensation amount determined here makes the percentage of variable compensation which is linked to organizational and individual performance.

(a) Fixed compensation

Fixed compensation is primarily consisted of base salary and other allowances.

Base salary is determined by reflecting individual role, responsibility, knowledge, skills, competencies, experience, etc. Other allowances are determined by reflecting the local labor market standards and practices.

(b) Variable compensation

Variable compensation is consisted of cash bonuses and deferred compensation, which are performance-linked compensations.

In 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 Bonuses

A 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 Compensation

Certain 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 part of compensation to the price of the Company’s stock and imposing certain vesting conditions, such plans will:

 

   

align employee interest with that of shareholders;

 

   

increase employee retention through providing opportunities to grow personal wealth over the period from grant to vesting; and

 

   

encourage cross-divisional and cross-regional collaboration by focusing individuals on a common goal of long-term increase in corporate value.

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 Japanese Financial Stability Board which recommends, among other things, a deferral period of three or more years.

 

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All 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.

The following table summarizes the main features of the key types of deferred compensation awards currently granted by Nomura to senior management 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.

 

Type of award        Key features

 

Restricted Stock Unit (“RSU”) awards

 

 

 

 

Settled in the Company’s common stock.

 

   

Graded vesting period generally over three years.

 

   

Extended vesting period of up to seven years for certain senior management and employees in order to meet local regulatory requirements based on the role they perform in Nomura.

 

   

New type of award introduced in 2018 as the primary type of deferred compensation award in Nomura. Granted in May 2018 in respect of the prior fiscal year.

 

 

Notional Stock Unit

(“NSU”) awards

 

 

 

 

Linked to the price of Company’s common stock and cash-settled.

 

   

Graded vesting period generally over three years. Extended vesting period of up to seven years for certain senior management and employees based on the role they perform in Nomura in order to meet local regulatory requirements.

 

   

Used in countries where equity-settled RSU awards are less favorably treated from a tax or other perspective.

 

   

Following the introduction of RSU awards, NSU awards are less commonly used in Nomura.

 

   

Granted in May each year in respect of the prior fiscal year and also quarterly to new employees as a recruitment incentive to replace awards forfeited from prior employers.

 

 

Stock Acquisition Right (“SAR”) Plan A awards

 

 

 

 

Exercisable into 100 of the Company’s common stock.

 

   

Exercise price not less than the fair value of the Company’s common stock on grant date.

 

   

Cliff vesting period of two years.

 

   

Expire approximately seven years after grant date.

 

   

Not subject to claw back.

 

   

Granted in November each year in respect of various performance periods.

 

 

Following the introduction of Restricted Stock Unit (“RSU”) awards in 2018 as the primary type of deferred compensation award to be used by Nomura, certain core deferral awards and all supplemental awards are no longer used by Nomura.

For fiscal years ended March 31, 2017 and prior fiscal years, we granted SAR Plan B awards as a type of core deferral award to certain senior management which are stock unit awards linked to price of the Company’s

 

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common stock pursuant to several stock unit plans designed to replicate the structure of restricted stock awards commonly used in the United States and Europe. These awards are physically-settled upon exercise into the Company’s common stock, have an exercise price of ¥1 per share and graded vesting generally over three years with certain longer vesting or holding periods where required under local regulations, and are subject to forfeiture, reduction or clawback in the same way as the above awards.

For fiscal years ended March 31, 2011 through to March 31, 2017, we granted supplemental deferral awards comprising Collared Notional Stock Unit (“CSU”) awards and Notional Index Unit (“NIU”) awards. CSU awards are linked to the price of the Company’s stock subject to a cap and a floor and NIU awards are linked to a world stock index quoted by Morgan Stanley Capital International. Both types of award are cash-settled with graded vesting generally over three years with certain longer vesting periods where required by local regulations, and are subject to forfeiture, reduction or clawback in the same way as the above awards.

Following the introduction of RSU awards, no new SAR Plan B, CSU or NIU awards were granted in May 2018 in respect of the fiscal year ended March 31, 2018. However, existing unvested awards continue to vest in accordance with their original contractual terms.

(b -3) Consistency with risk management and linkage to performance

In determining aggregate compensation, Nomura considers the ratio of compensation and benefit expenses to adjusted net income (defined as net income before income taxes and before deduction of compensation and benefits expenses followed by a specific risk adjustment). The risk adjustment to income is determined by deducting a certain proportion of economic capital from each division’s revenue. Such economic capital comprehensively recognizes quantitatively assessed risks, and reflects various risks including market, credit, liquidity, and operational risks.

Nomura recognizes that its aggregate compensation should maintain consistency with the current financial soundness and future prospects of Nomura, and that it should not have significant impact on capital adequacy in the future.

2.    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 policy.

2-1.    Aggregate compensation

 

    Number of
Directors or
Executive
Officers(1)
    Millions of yen  
    Year ended March 31, 2019  
    Basic Compensation(2)(3)     Bonus     Deferred Compensation(4)     Total  

Directors

    10     ¥ 251     ¥ —       ¥ 42     ¥ 293  

(Outside Directors included in above)

    (8     (127     (  —       (  —   )     (127

Executive Officers

    8       607       —         466       1,073  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    18     ¥ 858     ¥ —       ¥ 508     ¥ 1,366  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

The number of people includes 2 Directors who retired in June 2018. There were 8 Directors and 8 Executive Officers as of March 31, 2019. Compensation to Directors who were concurrently serving as Executive Officers is included in that of Executive Officers.

(2)

Basic compensation of ¥858 million includes other compensation (such as commuter pass allowances) of ¥1.12 million.

 

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(3)

In addition to basic compensation of Executive Officers, ¥24 million of corporate housing costs, such as housing allowance and related tax adjustments, were provided.

(4)

Deferred compensation (such as RSU, SAR Plan A and B) granted during and prior to the fiscal year ended March 31, 2019 is recognized as expense in the financial statements for the fiscal year ended March 31, 2019.

(5)

Subsidiaries of the Company paid ¥49 million to Outside Directors as compensation etc. for their directorship at those subsidiaries for the year ended March 31, 2019.

(6)

The Company abolished retirement bonuses to Directors in 2001.

2-2.    Individual compensation of Directors and Executive Officers receiving ¥100 million or more

 

              Millions of yen  
              Fixed Remuneration
(Basic Compensation)
    Variable Compensation(1)        

Name

  Company     Category   Base Salary     Equity
Compensation
(RSUs)
    Total     Cash
Bonus
    Deferred
Compensation
(RSUs, etc.)
    Total     Total  

Koji Nagai(2)

    Nomura     Director,

Representative

Executive

Officer

(Group CEO)

  ¥ 102     ¥ 17     ¥ 119     ¥ —       ¥ —       ¥ —       ¥ 119  
(1)

Variable Compensation indicates the amount determined as remuneration based on the performance during the fiscal year ended March 31, 2019.

(2)

In addition to basic compensation, ¥24 million of corporate housing costs, such as housing allowance and related tax adjustments, were provided.

2-3.    Status of indicators referred in determining performance-linked compensation

Performance-linked compensation has been determined based on the mechanism described in above sections and certain indicators. Changes of the indicators between actuals of previous fiscal year and current year are referred in determining the performance-linked compensation as well as other qualitative information, compensation trends among competitors and industry.

Please refer to Item 3.A. “Selected Financial Data” for the actual values of the referring indicators.

3.    Compensation governance and control

The Compensation Committee of Nomura, which is a statutory committee, is responsible for approving our overall compensation policy and for ensuring that the Nomura Group’s compensation framework supports our business strategy.

The Compensation Committee was held 4 times during the fiscal year to review and determine policies, framework, and individual compensation of directors and executive officers. To ensure effective discussion and determination at the Compensation Committee, executive officers are invited. Regarding the members of the Compensation Committee, please refer to Item 6.A. “Directors and Senior Management”.

The Compensation Committee’s activities during the fiscal year are following, revision of Nomura’s deferred compensation framework and variable compensation were discussed and determined on April 26, 2018. In addition, on June 22, 2018, after the appointment of directors at the annual shareholder meeting, the Compensation Committee reviewed and confirmed our compensation policy and determined fixed compensation for new directors. On August 20, 2018, the Company held a Joint Committee of Nomination and Compensation in order to discuss a succession plan for Group CEO and revision of the institutional design of major subsidiaries. On March 29, 2019, the fixed remuneration was determined for newly appointed executive officers as of April 1.

 

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Stock Acquisition Rights (“SARs”)

The following table presents information regarding unexercised Stock Acquisition Rights as of March 31, 2019.

 

   

March 31, 2019

 

Series of SARs

 

Allotment Date

  Number of
Shares under
SARs
   

Exercise Period

of SARs

  Exercise
Price per
Share under
SARs
    Paid-in
Amount for
SARs
 

Stock Acquisition Rights No.45

  June 5, 2012     217,100    

From April 20, 2014

to April 19, 2019

  ¥ 1     ¥   0  

Stock Acquisition Rights No.46

  June 5, 2012     708,800    

From April 20, 2015

to April 19, 2020

    1       0  

Stock Acquisition Rights No.47

  June 5, 2012     586,900    

From April 20, 2016

to April 19, 2021

    1       0  

Stock Acquisition Rights No.48

  June 5, 2012     845,800    

From April 20, 2017

to April 19, 2022

    1       0  

Stock Acquisition Rights No.49

  June 5, 2012     84,600    

From October 20, 2015

to April 19, 2021

    1       0  

Stock Acquisition Rights No.50

  June 5, 2012     116,200    

From October 20, 2016

to April 19, 2022

    1       0  

Stock Acquisition Rights No.51

  November 13, 2012     996,500    

From November 13, 2014

to November 12, 2019

    298       0  

Stock Acquisition Rights No.52

  June 5, 2013     140,500    

From April 20, 2014

to April 19, 2019

    1       0  

Stock Acquisition Rights No.53

  June 5, 2013     563,400    

From April 20, 2015

to April 19, 2020

    1       0  

Stock Acquisition Rights No.54

  June 5, 2013     726,800    

From April 20, 2016

to April 19, 2021

    1       0  

Stock Acquisition Rights No.55

  November 19, 2013     2,681,200    

From November 19, 2015

to November 18, 2020

    821       0  

Stock Acquisition Rights No.56

  June 5, 2014     745,500    

From April 20, 2015

to April 19, 2020

    1       0  

Stock Acquisition Rights No.57

  June 5, 2014     1,026,600    

From April 20, 2016

to April 19, 2021

    1       0  

Stock Acquisition Rights No.58

  June 5, 2014     1,723,200    

From April 20, 2017

to April 19, 2022

    1       0  

Stock Acquisition Rights No.59

  June 5, 2014     433,600    

From March 31, 2015

to March 30, 2020

    1       0  

Stock Acquisition Rights No.60

  June 5, 2014     594,200    

From March 31, 2016

to March 30, 2021

    1       0  

Stock Acquisition Rights No.61

  June 5, 2014     2,159,600    

From March 31, 2017

to March 30, 2022

    1       0  

Stock Acquisition Rights No.62

  November 18, 2014     2,675,700    

From November 18, 2016

to November 17, 2021

    738       0  

Stock Acquisition Rights No.63

  June 5, 2015     889,700    

From April 20, 2016

to April 19, 2021

    1       0  

Stock Acquisition Rights No.64

  June 5, 2015     1,534,100    

From April 20, 2017

to April 19, 2022

    1       0  

Stock Acquisition Rights No.65

  June 5, 2015     2,496,200    

From April 20, 2018

to April 19, 2023

    1       0  

 

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March 31, 2019

 

Series of SARs

 

Allotment Date

  Number of
Shares under
SARs
   

Exercise Period

of SARs

  Exercise
Price per
Share under
SARs
    Paid-in
Amount for
SARs
 

Stock Acquisition Rights No.68

  November 18, 2015     2,568,800    

From November 18, 2017

to November 17, 2022

    802       0  

Stock Acquisition Rights No.69

  June 7, 2016     1,524,600    

From April 20, 2017

to April 19, 2022

    1       0  

Stock Acquisition Rights No.70

  June 7, 2016     2,601,700    

From April 20, 2018

to April 19, 2023

    1       0  

Stock Acquisition Rights No.71

  June 7, 2016     5,597,600    

From April 20, 2019

to April 19, 2024

    1       0  

Stock Acquisition Rights No.72

  June 7, 2016     481,700    

From October 30, 2016

to October 29, 2021

    1       0  

Stock Acquisition Rights No.73

  June 7, 2016     105,400    

From April 30, 2017

to April 29, 2022

    1       0  

Stock Acquisition Rights No.74

  November 11, 2016     2,536,400    

From November 11, 2018

to November 10, 2023

    593       0  

Stock Acquisition Rights No.75

  June 9, 2017     2,089,800    

From April 20, 2018

to April 19, 2023

    1       0  

Stock Acquisition Rights No.76

  June 9, 2017     4,395,300    

From April 20, 2019

to April 19, 2024

    1       0  

Stock Acquisition Rights No.77

  June 9, 2017     4,508,800    

From April 20, 2020

to April 19, 2025

    1       0  

Stock Acquisition Rights No.78

  June 9, 2017     853,800    

From April 20, 2021

to April 19, 2026

    1       0  

Stock Acquisition Rights No.79

  June 9, 2017     851,300    

From April 20, 2022

to April 19, 2027

    1       0  

Stock Acquisition Rights No.80

  June 9, 2017     136,200    

From April 20, 2023

to April 19, 2028

    1       0  

Stock Acquisition Rights No.81

  June 9, 2017     136,200    

From April 20, 2024

to April 19, 2029

    1       0  

Stock Acquisition Rights No.82

  June 9, 2017     453,800    

From October 30, 2017

to October 29, 2022

    1       0  

Stock Acquisition Rights No.83

  June 9, 2017     63,900    

From April 30, 2018

to April 29, 2023

    1       0  

Stock Acquisition Rights No.84

  November 17, 2017     2,525,500    

From November 17, 2019

to November 16, 2024

    684       0  

Stock Acquisition Rights No.85

  November 20, 2018     2,555,200    

From November 20, 2020

to November 19, 2025

    573       0  
(1)

SARs (including those granted to Directors and Executive Officers of Nomura which are stated in the table below) are issued in conjunction with deferred compensation plan.

(2)

The number of shares issuable under SARs is subject to adjustments under certain circumstances including stock splits.

 

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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, 2019.

 

     March 31, 2019  
            Numbers of Holders  

Series of SARs

   Number of
Shares under
SARs
     Directors and
Executive Officers
(excluding
Outside Directors)
 

Stock Acquisition Rights No.46

     4,900        2  

Stock Acquisition Rights No.47

     17,200        4  

Stock Acquisition Rights No.48

     22,800        5  

Stock Acquisition Rights No.53

     24,100        3  

Stock Acquisition Rights No.54

     24,000        3  

Stock Acquisition Rights No.56

     17,300        2  

Stock Acquisition Rights No.57

     34,800        3  

Stock Acquisition Rights No.58

     76,000        4  

Stock Acquisition Rights No.59

     20,600        3  

Stock Acquisition Rights No.60

     20,600        3  

Stock Acquisition Rights No.61

     62,600        4  

Stock Acquisition Rights No.63

     39,100        4  

Stock Acquisition Rights No.64

     75,600        5  

Stock Acquisition Rights No.65

     75,400        5  

Stock Acquisition Rights No.69

     116,300        6  

Stock Acquisition Rights No.70

     115,800        6  

Stock Acquisition Rights No.71

     169,600        9  

Stock Acquisition Rights No.75

     118,000        6  

Stock Acquisition Rights No.76

     135,200        7  

Stock Acquisition Rights No.77

     134,900        7  

Pension, Retirement or Similar Benefits

See Note 13 “Employee benefit plans” in our consolidated financial statements included in this annual report.

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.

Since June 2003, the Company has adopted a corporate governance structure that separates management oversight functions from business execution functions (“Company with Three Board Committees”). Through this governance structure, the Company aims to strengthen management oversight, increase the transparency of the

 

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Company’s management and expedite the decision-making process within the Nomura Group. An outline of the Company’s Board of Directors, Nomination Committee, Audit Committee and Compensation Committee is provided below.

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 ten times during the fiscal year ended March 31, 2019. As a group, the Directors attended 100% of the total number of meetings of the Board of Directors during the year. The Board of Directors has the authority to determine the Company’s basic management policy and supervise the execution by the Executive Officers of their duties. Although the Board of Directors also has the authority to make decisions with regard to the Company’s business, most of this authority has been delegated to the Executive Officers by a resolution adopted by the Board of Directors. There are no Directors’ service contracts with the Company or any of its subsidiaries providing for benefits upon termination of employment.

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 six times during the fiscal year ended March 31, 2019. As a group, the member Directors attended all of the meetings of the Nomination Committee during the year. As of June 25, 2019, the members of the Nomination Committee are Nobuyuki Koga, a Director not concurrently serving as an Executive Officer, and Outside Directors Hiroshi Kimura and Kazuhiko Ishimura. Hiroshi Kimura is the Chairman of this Committee.

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 financial 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 seventeen times during the fiscal year ended March 31, 2019. As a group, the member Directors attended all of the meetings of the Audit Committee during the year. As of June 25, 2019, the members of the Audit Committee are Hisato Miyashita (a full-time member of the Audit Committee) and Outside Directors, Noriaki Shimazaki and Mari Sono. Noriaki Shimazaki is the Chairman of this Committee.

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 four times during the fiscal year ended March 31, 2019. As a group, the member Directors attended all of the meetings of the Compensation Committee during the year. As of June 25, 2019, the members of the Compensation Committee are Nobuyuki Koga, a Director not concurrently serving as an Executive Officer, and Outside Directors Hiroshi Kimura and Kazuhiko Ishimura. Hiroshi Kimura is the Chairman of this Committee.

 

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Limitation of Director Liability

In accordance with Article 33, Paragraph 2 of the Company’s Articles of Incorporation and Article 427, 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: Hisato Miyashita, Hiroshi Kimura, Kazuhiko Ishimura, Noriaki Shimazaki, Mari Sono, Michael Lim Choo San and Laura Simone Unger. Liability under each such agreement is limited to either ¥20 million or the amount prescribed by laws and regulations, whichever is greater.

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:

 

     March 31,  
     2017      2018      2019  

Japan

     16,227        15,819        15,852  

Europe

     3,026        3,057        2,909  

Americas

     2,314        2,362        2,357  

Asia and Oceania

     6,619        6,810        6,746  
  

 

 

    

 

 

    

 

 

 

Total

     28,186        28,048        27,864  
  

 

 

    

 

 

    

 

 

 

As of March 31, 2019, we had 15,852 employees in Japan, including 9,524 in our Retail Division, 1,616 in our Wholesale Division and 829 in our Asset Management Division. In overseas, we had 12,012 employees, of which 2,909 were located in Europe, 2,357 in the Americas, and 6,746 in Asia and Oceania.

As of March 31, 2019, 9,199 of Nomura Securities’ employees in Japan were members of the Nomura employees’ union, with which we have a labor contract. The Company and labor union communicate frequently in order to resolve labor-related matters.

We have not experienced any strikes or other labor disputes in Japan or overseas and consider our employee relations to be excellent.

E. Share Ownership.

The following table shows the number of shares owned by our Directors and Executive Officers as of May 31, 2019. As of that date, none of them owned 1% or more of our issued and outstanding shares. None of the shares referred to below have different voting rights.

 

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Directors

 

Name

   Number of
Shareholdings
 

Nobuyuki Koga

     313,165  

Koji Nagai

     438,073  

Shoichi Nagamatsu

     211,545  

Hisato Miyashita

     84,200  

Hiroshi Kimura

     —    

Kazuhiko Ishimura

     —    

Noriaki Shimazaki

     11,656  

Mari Sono

     —    

Michael Lim Choo San

     —    

Laura Simone Unger

     (1,000ADR )(1) 
  

 

 

 

Total

     1,058,639  
  

 

 

 

 

(1)

ADRs are not included in the total.

Executive Officers

 

Name

   Number of
Shareholdings
 

Koji Nagai

     See above  

Shoichi Nagamatsu

     See above  

Kentaro Okuda

     83,180  

Toshio Morita

     241,249  

Junko Nakagawa

     18,981  

Yuji Nakata

     81,191  

Tomoyuki Teraguchi

     82,010  

Takumi Kitamura

     30,132  
  

 

 

 

Total

     536,743  
  

 

 

 

For information regarding stock options granted to our Directors and Executive Officers, see Item 6.B “Compensation” of this annual report.

Item 7. Major Shareholders and Related Party Transactions

A. Major Shareholders.

According to a statement on Schedule 13G (Amendment No.4) filed by BlackRock, Inc. with the SEC on February 6, 2019, BlackRock, Inc. owned 213,734,270 shares, representing 6.10% of the issued shares of the Company’s common stock. However the Company has not confirmed the status of these shareholdings as of March 31, 2019.

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, 2019, there were 257 Nomura shareholders of record with addresses in the U.S., and those U.S. holders held 382,249,042 shares of the Company’s common stock, representing 10.9% of Nomura’s then outstanding common stock. As of March 31, 2019, there were 29,311,158 ADSs outstanding, representing 29,311,158 shares of the Company’s common stock or 0.8% of Nomura’s then outstanding common stock. Our major shareholders above do not have different voting rights.

 

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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 39.3% of NRI’s outstanding share capital as of March 31, 2019.

For the year ended March 31, 2019, we purchased ¥13,515 million worth of software and computer equipment and paid ¥40,965 million for other services to NRI, while received ¥494 million from NRI.

Nomura has decided to tender part of its holdings of ordinary shares in NRI through a self-tender offer approved by the board of directors of NRI on June 18, 2019. The number of shares to be tendered is 101,910,700 at an offer price of ¥1,570