Form X-17A-5 National Bank Of Canada Financial Inc.

FOCUS Report


Filed: 2018-12-27 09:45:59
Dated: 2018-12-27
Period of Report: 2018-10-31
Company [CIK]Party Type
NATIONAL BANK OF CANADA FINANCIAL INC. [0000835587](Filer)
primary_doc.html

X-17A-5: Filer Information

X-17A-5: Submission Information

X-17A-5: A. Registrant Identification

Address of Principal Place of Business (Do not use P.O. Box No.)

Address 1
65 EAST 55TH STREET
Address 2
8TH FLOOR
City
NEW YORK
State/Country
NEW YORK
Mailing Zip/ Portal Code
10022

Name and Telephone Number of Person to Contact in Regard to this Report

Name
Mr. Paul E. Morris
Telephone Number
212-632-8877

X-17A-5: B. Accountant Identification

Independent Public Accountant

X-17A-5: Signature

Oath or Affirmation

I, Paul E. Morris, swear (or affirm) that, to the best of my knowledge and belief the accompanying financial statement and supporting schedules pertaining to the firm of NATIONAL BANK OF CANADA FINANCIAL INC., as of 10-31-2018, are true and correct. I further swear (or affirm) that neither the company nor any partner, proprietor, principal officer or director has any proprietary interest in any account classified solely as that of a customer, except as follows:

Notary Public

8-39947_Public_SFC_2018.pdf PUBLIC AUDITED STMT OF FINANCIAL CONDITION

Statement ofFinancial Condition
as ofOctober 31, 2018

NATIONAL BANK OF CANADA
FINANCIAL INC.
(SEC I.D. No. 8-39947)

Filed pursuant to Rule l 7a-5(e)(3) under the
Securities Exchange Act of 1934 as a public document.


NATIONAL BANK OF CANADA FINANCIAL INC.
Table of Contents



Report oflndependent Registered Public Accounting Fîrrn ............................................................... 1


Statement of Financial Condition ....................................................................................................... 2


Notes to Statement of Fînancîal Condition ..................................................................................... 3-19


                                                                                                        EisnerAmper LLP
                                                                                                         750 Third Avenue
EISNERÂMPER                                                                                            New York, NY 10017
                                                                                                          T 212.949.8700
                                                                                                           F 212.891.4100
                                                                                                     www. 1sr rarnper ni



  REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

  To the Management and Stockholder of National Bank of Canada Financial l nc.


  Op inion on the Financial Statement

  We have audited the accompanying statement of financial condition of National Bank of Canada Financial
  lnc. (the "Company") as of October 31 , 2018 and the related notes (collectively referred to as the "financial
  statement"). ln our opinion, the financial statement presents fairly, in ail material respects, the financial
  position of the Company as of October 31, 2018, in conformitywith accounting principles generally accepted
  in the United States of America.

  Basis for Opinion

  This financial statement is the responsibility of the Company's management. Our responsibility is to express
  an opinion on the Company's financial statement based on our audit. We are a public accounting firm
  registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are
  required to be independent with respect to the Company in accordance with the U.S. federal securities laws
  and the applicable ru les and regulations of the Securities and Exchange Commission and the PCAOB.

  We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we
  plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of
  material misstatement, whether due to error or fraud. Our audit included performing procedures to assess
  the risks of material misstatement of the financial statement, whether due to error or fraud, and performing
  procedlures that respond to those risks. Such procedures included examin ing, on a test basis, evidence
  regarding the amounts and disclosures in the financial statement. Our audit also included evaluating the
  accounting principles used and significant estimates made by management, as well as evaluating the
  overall presentation of the financial statement. We believe that our audit provides a reasonable basis for
  our opinion.




  We have served as the Company's auditor since 2016.

  EISNERAMPER LLP
  New York, New York
  December 21, 2018




                                                                                                                   --


NATIONAL BANK OF CANADA FINANCIAL INC.
Statement of Financial Condition
As of O ctober 31, 2018
(ln Thousa nds of U.S. Dollars)
                                                                                             $

Assets
   Cash                                                                                     2,866
   Securities borrowed                                                                  3,120,274
   Deposits with clearing broker-dealers and organizations                                 46,205
   Receivable from broker-dealers and clearing organizations                              114,056
   Receivable from customers                                                               58,263
   Receivable from related parties                                                          6,591
   Securities owned, at fair value ($131 ,637 pledged under securities lending
      transactions and $41 ,86 l pledged to a clearing organization)                      555,523
   Incarne taxes receivable                                                                 5,242
   Deferred income taxes                                                                      595
   Other assets                                                                             6,100
                                                                                        3,915,715

Liabilities
   Bank loan payable to ultimate parent company                                            12,303
   Securities loaned                                                                    3,127,632
   Payable to brokeredealers and clearing organizations                                   180,192
   Payable to customers                                                                       112
   Payable to related parties                                                               2,974
   Securities sold, not yet purchased, at fair value                                       77,508
   Incarne taxes payable to parent company                                                  9,510
   Accrued expenses and other liabifüies                                                   18,678
                                                                                        3,428,909

Stockholder's Equity
   Common stock, par value of one cent per share:
         3,000 shares authorized
          1,000 shares issued and outstanding
   Additional paid-in capital                                                             456,537
   Retained eamings                                                                        30,269
                                                                                          486,806
                                                                                        3,915,715

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




                                                Page 2of 19


NATIONAL BANK OF CANADA FINANCIAL INC.
Notes to Statement of Financial Condition
October 31, 2018
(lu Thousands of U.S. Dollars)



1.    Description of the Business
     National Bank of Canada Financial lnc. (the "Company") is a Delaware corporation, a registered
     b roker-dealer under the Securities Exchange Act of1934 as well as a member of the Financial
     Industry Regulatory Authority (" FINRA") and a member of the Securities lnvestor Protection
     Corporation. The Company is a lso a member of the Depository Trust Company, the National
     Securities Clearing Corporation and the Options Clearing Corporation and is registered with the
     Municipal Securities Rulemaking Board.

     The parent company of the Company is National Bank of Canada Financial Group Inc. ("parent
     company") and the Company is ultimately wholly-owned by National Bank of Canada (''NBC").


2.   Significant Accounting Policies
     Basis ofPresentation
     The preparation of the statement of financial condition in conformity with GAAP requires
     management to make estimates and assumptions that affect the reported amounts of assets and
     liabilities and disclosure of contingencies at the date of the statement of financial condition. These
     estimates and the underlying assumptions affect the amounts of assets, liabilities and reported
     disclosures about contingent assets and liabi lities. Such estimates, including the fair value of
     financial instruments and valuation of deferred tax assets, are, by their nature, based onjudgment
     and available information and, therefore, may vary from actual results. Management evaluates its
     estimates and assumptions on an ongoing basis using historical experience and other factors,
     including the current economic environment, which management believes to be reasonable under
     the circumstances. The Company adjusts such estimates and assumptions when facts and
     circumstances dictate. Actual results could differ from those estimates.

     Financial Instruments Transaclions
     F inancial instruments transactions are recorded on a trade date basis. Securities owned and
     securities sold, not yet purchased are recorded at fair value in accordance with FASB ASC 820,
     " Fair Value Measurement".

     Income Taxes
     The Company accounts for incarne taxes in accordance with FASB ASC 740, "lncome Taxes",
     which requires the recognition of tax benefits or ex penses on the temporary differences between the
     financial reporting and tax bases of assets and liabilities, including the accounting for uncertainty of
     income tax positions recognized in the statement of financial condition, prescribing a "more-likely-
     than-not" threshold and measurement attribute for recognition in the statement of financial
     condition of an asset or liability resulting from a tax position taken or expected to be taken in an
     income tax return.




                                               Page 3of 19


NATIONAL BANK OF CANADA FINANCIAL INC.
Notes to Statement of Financial Condition
October 31, 2018
(lu Thousands of U.S. Dollars)



2.   Significant Accounting Policies (continued)
      Foreign Currency Translation
     Monetary assets and liabilities denominated in foreign currencies are translated into U.S. dollars at
     the period-end exchange rates.

     Derivative Financial Instruments
     The Company enters into various transactions involviog derivative financial instruments, including
     swap, option and futures contracts. These financial instruments are used to manage market risks. If
     quoted market prices are not available, then fair values are estimated on the basis of pricing
     models, quoted prices of instruments with similar characteristics or discounted cash fllows.

     Recent Accounting Developments
     In January 2016, the FASB issued ASU No. 2016-01 , "Financial Instruments - Overall (Subtopic
     825-10): Recognition and Measurement ofFinancial Assets and Financial Liabilities". ASU No.
     2016-01 enhances the reporting model for financial instruments, which includes amendments to
     address aspects of recognition, measurement, presentation and disclosure. The new guidance
     affects ail reporting organizations that hold financial assets or owe financial liabilities. The ASU is
     effective for years beginning after December 15, 2017, including interim periods witbin those fiscal
     years. The Company is still evaluating the impact of ASU No. 2016-0 1 on its statement of financial
     condition.

     In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)". ASU 2016-02 will
     require organizations that lease assets with lease terms of more than J2 months to recoguize assets
     and liabilities for the rights andl obligations created by those leases on their statements of financial
     condition. The ASU will also require new qualitative and quantitative disclosures to help financial
     statement users better understand the amount, timing, and uncertainty of cash flows arising from
     leases. ASU No. 2016-02 will be effective for fiscal years, and interim periods within those fiscal
     years, beginning after December 15, 2018, with early adoption permitted. The Company is still
     evaluating the impact of ASU No. 2016-02 on its statement offinancial condition.




                                               Page 4of 19


NATIONAL BANK OF CANADA FINANCIAL INC.
Notes to Statement of Financial Condition
October 31, 2018
(lu Thousands of U.S. Dollars)



3.   Fair Value and Financial Instruments
      Fair Value Measurement
     F ASB ASC 820 defines fair value, establishes a framework for measuring fair value, and
     establishes a fair value hierarch.y which prioritizes the use of observable inputs to valuation
     techniques. Fair value is the price that would be received to sell an asset or paid to transfer a
     hability in an orderly transaction between market participants at the measurement date. A fair value
     measurement assumes that the transaction to sell the asset or transfer the liability occurs in the
     p rincipal market for the asset or liability or, in the absence of a principal market, the most
     advantageous market. Valuation techniques that are consistent with the market, incarne or cost
     approach, as specified by F ASB ASC 820, are used to measure fair value.

     The fair value hierarchy prioritizes the use of observable inputs to valuation techniques used to
     measure fair value into three broad levels:

     •   Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities
         the Company have the ability to access.

     •   Level 2 inputs are inputs (other than quoted prices încluded withîn Level 1) that are observable
         for the asset or liability, either directly or indirectly.

     •   Level 3 inputs are unobservable inputs for the asset or liability and are significant to the overall
         fair value measurement.

     The availability of observable inputs can vary from security to security and is affected by a wide
     variety of factors, including, for example, the type of security, the liquidity of markets, and other
     characteristics particular to the security. To the extent that valuation is based on models or inputs
     that are less observable or unobservable in the market, the determination of fair value requires more
     j udgment. Accordingly, the degree ofjudgment exercised in determining fair value is greatest for
     instruments categorized in Level 3.




                                               Page 5of 19


NATIONAL BANK OF CANADA FINANCIAL INC.
Notes to Statement of Financial Condition
October 31, 2018
(lu Thousands of U.S. Dollars)



3.   Fair Value and Financial Instruments (continued)
      Fair Value Measurement (continued)
     A description of the valuation techniques applied to the Company' s major categories of assets and
     [iabilities measured at fair value on a recurring basis follows.

     (a) U.S. Treasury Bills
         U.S. Treasury Bills are valued using quoted market prices and are categorized in Level 1 of the
         fair value hierarchy.

     (b) Exchange-Traded Equity Securities, Exchange-Traded Funds and Exchange-Traded Real
         Estate Investment Trusts
         Exchange-traded equity securities, exchange-traded funds and exchange-traded real estate
         investment trusts are valued using quoted market prices. Accordingly, these exchange-traded
         equity securities, funds and trusts are categorized in Level l of the fair value hierarchy.

     (c) Listed Derivative Contracts
         Listed derivatives that are actively traded, such as option and futures contrarcts, are valued
         based on quoted market prices and are categorized in Level 1 of the fair value hierarchy.

     (d) Over-the-Counter ("OTC") Total Retum Equity Swap Contracts
         OTC total retum equity swap contracts are valued using the accrual pricing methodology
         which prices each leg of the swap based on its accrued value. The value of the interest leg is
         simply the accrued interest, and the value of the equity leg is the difference between the last
         price of the underlying equity security and its fixing price, rimes the nominal amount of the
         shares, plus dividends paid. These swap contracts are categorized in Level 2 of the fair value
         hierarchy.




                                              Page 6of19


NATIONAL BANK OF CANADA FINANCIAL INC.
Notes to Statement of Financial Condition
October 31, 2018
(lu Thousands of U.S. Dollars)



3.   Fair Value and Financial Instruments (continued)
     Fair Value Measurement (conti.nued)
     The following table presents the Company's fair value hierarchy for those financial assets and
     financial liabilities measured at fair value on a recurring basis:
                                                  Fair Value Measu rements Using
                                               Levell         Levcl 2        Level 3   Netting      Total
                                                 $             $                $        $            $
      Financial assets
         Receivable from broker-dealers
          and clearing organizations
           Futures contracts                                     33,534                  (33,534)

         Secmities owned
           Exchange-traded equity securities      438,523                                           438,523
           Exchange-traded funds                   97,849                                            97,849
           Exchange-traded real estate investment
             trust units                           10,187                                            10,187
           Exchange-traded 02tions contracts        8,964                                             8,964
                                                  555,523                                           555,523
                                                 555,523         33,534                  (33,534)   555,523

      Fina ncial liabilities
         Payable to broker-dealers
          and clearing organizations
            Futures contracts                                     5,958                   (1,468)     4,490

         Payable to related parties
           Total return equity swap contract                        35                                  35

         Securities sold, not yet purchased
           Exchange-traded equity securities      68,469                                             68,469
           Exchange-traded funds                     311                                                311
           Exchange-traded options contracts       8,728                                              8,728
                                                  77,508                                             77,508
                                                  77,508          5,993                   (1,468)    82,033


     There were no transfers between ail levels of the fair value hîerarchy durîng the year.




                                                   Page 7of19


NATIONAL BANK OF CANADA FINANCIAL INC.
Notes to Statement of Financial Condition
October 31, 2018
(lu Thousands of U.S. Dollars)



3.   Fair Value and Financial Instruments (continued)
      Fair Value Measurement (continued)
     The two following tables present information about the offsetting of fair values of futures contracts
     and related margin balances recorded in amounts receivable from broker-dealers and clearing
     organizations in the statement of financial condition:

                                                                                        G!'oss Amounts
                                                                                        Not Offset in the
                                                                                          Statcmcnt of
                                                                                       Financial Condition
                                                     G1·oss        Net Amounts
                                                    Amounts          of Asscts
                                     Gross        Offset in the   Prescnted in the
                                   Am ounts of    Statement of     Statement of                       Cash
                                   Recognized      Financial         Fina ncial        F inancial   Collateral     Net
                                     Asscts        Condition         Condition       I!nstrumcnts   Rcceived      Amou nt
                                       $               $                 $                $             $           $

     Equity futures cont:racts       33,534         (33,534)


     Gross amounts of recognized assets presented in the table above represent fair values of futures
     contracts. Fair values of futures contracts are recorded as amounts receivable from broker-dealers
     and clearing organizations in the statement of financial condition. The gross amounts offsetting
     gross amounts of recognized assets include (1) an offset of $1,468 representing negative fair values
     of certain futures contracts whi.ch are presented in the following table as gross amounts of
     recognized liabilities and which are settled on a net basis with the futures contracts presented in the
     table above; and (2) an offset of $32,066 of cash collected from a clearing organization in
     settlement of the net unrealized gain associated with the open futures contracts cleared with this
     organization.

                                                                                        Gross Amounts
                                                                                        Not Offset in the
                                                                                          Statement of
                                                                                       Financial Conditio n
                                                     Gross         Net Amounts
                                                    Amounts        of Liabilities
                                     Gross        OtTset in the   Presented in the
                                   Amounts of     Statcmcnt of     Statement of                       Cash
                                   Recognized       Financial        Financial        Financial     Colla terni    Net
                                   Liabilities     Condition         Condition       Instruments     Pled ged     Amount
                                       $               $                 $                $             $           $

     Equity futures contracts         5,958          (1,468)            4,490                                      4,490


     Gross amounts of recognized liabilities presented in the table above represent fair values offutures
     contracts. The gross amounts offsetting gross amounts of recognized liabilities represent the
     negative fair values of certain futures contracts which are either (1) settled on a net basis with
     futures contracts presenting positive fair values; or (2) netted against cash held in the Company' s
     commodities trading accounts, ail of which are recorded as amounts receivable from broker-dealers
     and clearing organizations in the statement of financial condition.


                                                 Page 8of 19


NATIONAL BANK OF CANADA FINANCIAL INC.
Notes to Statement of Financial Condition
October 31, 2018
(lu Thousands of U.S. Dollars)



3.   Fair Value and Financial Instruments (continued)
      Financial Instruments Not Measured at Fair Value
     The table below presents the carrying value, fair value and fair value hierarchy category of certain
     financial instruments that are not measured at fair value in the Company's statement of financial
     condition.
     The carrying value of financial instruments not measured at fair value categorized in the fair value
     hierarchy as Level 1 or Level 2 (e.g. cash and securities borrowed) approximates fair value because
     of the relatively short period of time between their origination and expected maturity.
                                                                              Fair Value Measure ments Usin2
                                                      Carrying       Fair
                                                       Value        Value     Level 1    Level 2     Level 3
                                                         $            $         $          $           $

     Financial assets
        Cash                                             2,866       2,866     2.866
        Securilies borrowed                          3,120,274   3,120,274               3,120,274
        Deposits with clearing broker-dealers and
          organizations                                46,205       46,205    46,205
        Receivable from broker-dealers and
          clearing organizations                       114,056     114,056                 114,056
        Receivable from customers                       58,263      58,263                  58,263
        Receivable from related parties                  6,591       6,591                   6,591
        Other assets                                     3,858       3,858                   3,858
                                                     3,352,113   3,352,113    49,071     3,303,042

     Financial liabilities
        Bank loan payable to ultimate parent
          company                                       12,303       12,303                 12,303
        Securilies loaned                            3,127,632   3, 127,632              3,127,632
        Payable lo broker-dealers and
          clearing organizations                       175,702     175,702                 175,702
        Payable to customers                               112         112                     112
        Payable lo related parties                       2,939       2,939                   2,939
        Accrued expens.es and other liabilities         11,067      11,067                  11,067
                                                     3,329,755   3,329,755               3,329,755




                                                    Page 9of 19


NATIONAL BANK OF CANADA FINANCIAL INC.
Notes to Statement of Financial Condition
October 31, 2018
(lu Thousands of U.S. Dollars)



3.   Fair Value and Financial Instruments (continued)
     Risk Management
     (a) Position Risk and Interest Rate Risk
         The position risk of the Company corresponds to the risk that fluctuation in the prices of
         securities and in interest rates result in losses. The risk related to the fluctuation in the prices of
         securities represents the Joss the Company might incur due to changes in the fair value of a
         given instrument. Interest rate risk corresponds to the possible effect of fluctuations in interest
         rates on the Company's income and the retum on stockholder's equity. The Company protects
         itself against these risks through hedging techniques and market exposure limits.

     (b) Credit Risk and Credit Risk Concentration

          Credit risk is the risk of financial Joss as a result of default by a counterparty with respect to its
          obligations towards the Company. The Company attempts to limit credit risk by dealing with
          counterparties it deems creditworthy and by ensuring compliance with agreements.

         Credit risk concentration also arises when the Company grants loans to a single dlebtor or group
         of debtors with similar characteristics such that a change in economic or other circumstances
         could have the same impact on their ability to honor their obligations. The Company's greatest
         concentration of counterparty risk is with related parties. This concentration arises in the
         normal course of the Company's business and management does not believe it to be unusual.

         As of October 31, 2018, the Company' s greatest concentration of credü risk is from amounts
         totaling $6,591. that are receivable from National Bank Financial lnc. (''NBFJ"), a company
         ul.timately under common control. For further information on related party transactions with
         NBFI, see Note 7.

      Derivative Financial instruments
     Derivative financial instruments are financial contracts whose value is derived from an underlying
     interest rate, exchange rate, equity, commodity, credit instrument or index. Derivatives include
     swap, futures, forward or option contracts, or other financial instruments with similar
     characteristics.

     Derivative financial instruments used for trading purposes, including economic hedges of trading
     instruments, are carried at fair value. Open equity in futures transactions is recorded as a receivable
     from or payable to broker-dealers and clearing organizations, as applicable.

     Derivative financial instruments used for purposes other than trading are carried at fair value. The
     Company has entered into total retum equity swaps with NBC to economically hedge the
     Company's exposure arising from an employee compensation plan linked to the future fluctuation
     ofNBC's stock price.




                                                Page 10of19


NATIONAL BANK OF CANADA FINANCIAL INC.
Notes to Statement of Financial Condition
October 31, 2018
(lu Thousands of U.S. Dollars)



3.   Fair Value and Financial Instruments (continued)
      Derivative Financial Instruments (continued)
     Notional amounts of derivative financial instruments are not presented in assets and liabilities in
     the statement of financial condition. They represent the set underlying principal of a derivative
     financial instrument and serve as a point of reference in applying an exchange rate, interest rate,
     stock market price or other variable in order to determine the amount of cash flows to be
     exchanged.

     Notional amounts of derivative financial instruments as of October 31, 2018, are as follows:

                                                                One Year       Oneto        Total
                                                                 or Less     Five Years    Contracts
                                                                    $             $            $

     Equity derivatives
       OTC contract
          Swap                                                      6,746                     6,746
       Exchange-traded contracts
          Long futures contracts                                   89,727                    89,727
          Short futures contracts                                 507,858                   507,858
          Long options contracts                                   82,491                    82,491
          Short options contracts                                  82,491                    82,491

                                                                  769,313                   769,313


     D uring the year, notional amounts of derivative financial instrument contracts entered into by the
     Company have fluctuated in the range of $400,000 to $850,000.




                                             Page 11of19


NATIONAL BANK OF CANADA FINANCIAL INC.
Notes to Statement of Financial Condition
October 31, 2018
(lu Thousands of U.S. Dollars)



3.   Fair Value and Financial Instruments (continued)
      Derivative Financial Instruments (continued)
     Fair values of derivative financial instrwnents as of October 31, 2018, are as follows:

                                                                                  Asscts      Liabilitics
                                                                                    $             $

     Equity dcrivativcs
       ore contracts
          Swap                                                                                      35
       Exchange-traded contracts
          Futures contracts                                                       33,534         5,958
          Options contracts                                                        8,964         8,728
     Total dcrivativcs                                                            42,498        14,721
     Nctting                                                                     (33,534)       (1,468)

                                                                                   8,964        13,253


     Dcrivativc financial instruments prcsent ercdit risk. This is the risk of financial loss that the
     Company will have to assume if the counterparty fails to honor its contractual obligations.

     In case of exchange-traded con tracts, exposure to credit risk is limited because these transactions
     are standardized contracts executed on established exchanges, each of which is associated with a
     well-capitalized clearing house that assumes the obligations of both counterparties and guarantees
     their performance obligations. Ail exchange-traded contracts are subject to initial margins and daily
     settlement.




                                               Page 12of19


NATIONAL BANK OF CANADA FINANCIAL INC.
Notes to Statement of Financial Condition
October 31, 2018
(lu Thousands of U.S. Dollars)



4.   Securities Borrowed and Loaned
     Securities borrowed transactions require the Company to deposit cash with the lender. The
     Company is permitted to sell or re-pledge the securities received. As of October 31, 2018, the fair
     value of securities received under securities borrowed transactions amounted to $3,028,718 of
     which the Company re-pledged $2,907,084 under securities loaned transactions.

     The Company pledges certain of its securities owned for securities lending transactions. With
     respect to securities loaned, the Company receives collateral in the form of cash in an amount
     generally in excess of the fair value of securities loaned. The carrying value of pledged securities
     owned that can be sold or re-pledged by the counterparty was $131 ,637, as presented on the face of
     the statement offinancial condition as ofüctober 31, 2018.

     The Company monitors the fair value of securities borrowed and loaned on a daily basis, with
     additional collateral obtained or refunded as necessary. Securities borrowed and secur ities loaned
     transactions are recorded at the amount of cash collateral advanced or received, adjusted for
     additional collateral obtained or received. lnterest on such transactions when conducted with
     unrelated parties is accrued and is included on the statement of financial condition in other assets
     and in accrucd cxpcnscs and othcr liabilitics. Intcrcst on such transactions whcn conductcd with
     related parties is accrued and is included on the statement of financial condition in amounts
     receivable from and payable to related parties. For further information on securities borrowed and
     loaned transactions with related parties, see Note 7.

     The follow ing table presents as of October 31, 2018, the gross and net balances of securities
     borrowed.
                                                                                       Gross Amounts
                                                                                       Not Offset in the
                                                                                         Statement of
                                                                                      Financial Conditio n
                                                    G1·oss        Net Amounts
                                                   Amounts          of Assets
                                    G ross       Offset in the   Presented in the
                                  Amounts of     Statement of     Statement of                       Cash
                                  Recognized      financial         finaucial         flnancial    Colla terni    Net
                                    Asscts        Condition         Condition       l!nstruments   Received      Amount
                                       $              $                 $                $             $           $


     Securities borrowed            3,120,274                       3,120,274       (3,028,718)                  91,556




                                                Page 13of19


NATIONAL BANK OF CANADA FINANCIAL INC.
Notes to Statement of Financial Condition
October 31, 2018
(lu Thousands of U.S. Dollars)



4.   Securities Borrowed and Loaned (continued)
     The follow ing table presents as of October 31 , 2018, the gross and net balances of securities
     loaned.


                                                                                                      Gross Amounts
                                                                                                      Not Offset in the
                                                                                                        Statement of
                                                                                                    financial Conditio n
                                                             Grnss           Net Amounts
                                                            Amounts          of Liahilities
                                            Gross         Offset in the     Presented in the
                                         Amouots of       Statcmeot of       Statemeot of                         Cash
                                         R ecogoizcd       Fioaocial           Fioaocial        Finaocial       CoUatcral      Net
                                          Liabilities      Condition           Condition       Instruments       Pled ged     Amount
                                              $                 $                    $                $              $           $


     Securities loaned                    3,127,632                              3,127,632     (3,038,721)                    88,911



     The foUowing tables present as of October 31, 2018, security class information related to the gross
     asset for securities borrowed and the gross liability for securities loaned as well as the remaining
     maturity of the agreements.

                                                                                                            Securities       Secm·ities
                                                                                                            Borrowed          Loaned
                                                                                                                 $               $

      Exchange-traded equity securities, funds and real estate investment tmsts                            3,120,274        3,127,632


                                                                                                             G reate1·
                                                        Ove rnight        Up to 30           30-90           Than 90
                                                        a nd Open          Days              Days             Days             Total
                                                            $                $                 $                 $               $

     Securities borrowed                            3,120,274                                                               3,120,274

     Securities loaned                              3,127,632                                                               3,127,632




                                                        Page 14of19


NATIONAL BANK OF CANADA FINANCIAL INC.
Notes to Statement of Financial Condition
October 31, 2018
(lu Thousands of U.S. Dollars)



5.   Receivable F rom and Payable to Hroker-Dealers and Clearing
     Organizations
     The Company's institutional client security transactions are settled in cash against del ivery or
     receipt of securities. These transactions are cleared by NBFI.

     Amounts receivable from and payable to broker-dealers and clearing organizations as of
     October 31, 2018, consist of the following:

                                                                                Receivable        Païable
                                                                                     $                   $

     Securities failed-to-receive (Note 7)                                                         58,151
     Receivable from/payable to broker-dealers (Note 7)                          114,056          114,046
     lPayable to clearing organizatio:ns                                                            7,995
                                                                                 114,056          180,192

      Securities failed-to-receive represent the contract value of securities which have not been received
      by the Company on settlement date.


6.   Receivable from and Payable to C ustomers
     As of October 31, 2018, amounts receivable from and payable to customers consist of the
     following:

                                                                                Receivable        Païable
                                                                                     $                   $

     Securities failed-to-deliver/receive                                         58,263                 112

     Securities failed-to-deliver represent the contract value of securities which have not been delivered
     by the Company on settlement date.




                                              Page 15of19


NATIONAL BANK OF CANADA FINANCIAL INC.
Notes to Statement of Financial Condition
October 31, 2018
(lu Thousands of U.S. Dollars)



7.   Related Party Transactions
     The Company is involved in securities lending transactions with NBFI and has service agreements
     in place with NBFI and NBC, and NBC's U.S. branch. The service agreements describe certain
     services, expense sharing arrangements and other assistance the Company provides to its affiliates
     as well as describing services and functions provided by those affiliates to the Company.

      The following table sets forth the Company's related party assets and liabilities as of October 31 ,
      2018:

                                                                              NBFI        NB C       Total
                                                                               $           $           $

     Assets
         Cash                                                                             2,862       2,862

         Securities borrowed                                               2,080,238              2,080,238

         Receivable from broker-dealers and cleari.ng organizations
           Receivable from broker-dealers                                   114,056                 114,056

         Receivable from related parties
          Net interest receivable resulting from securities lending
            transactions due by November 30, 2018                              2,444                  2,444
          Receivable bearing no i.nterest with no fixed tenn of pay ment       4,147                  4,147
                                                                               6,591                  6,591
                                                                           2,200,885      2,862   2,203,747

     Liabilitics
        Bank Joan payable to ultimate parent company
          Loan bearing interest at the rate of2.2%
             per annum, maturing on November l , 2018                                    12,303      12,303

         Securilies loane d                                                  368,476                368,476

         Payable to broker -dealers and clearing organizations
           Securities failed-to-reœive                                        57,862                 57,862
          Payable to broker-dealers                                              160                    160
                                                                              58,022                 58,022

         Payable to related parties
           Payable bearing no intere.st with no fixed tenn of payment                     2,974       2,974
                                                                            4!26,498     15,277     441,775




                                                     Page 16of19


NATIONAL BANK OF CANADA FINANCIAL INC.
Notes to Statement of Financial Condition
October 31, 2018
(lu Thousands of U.S. Dollars)



8.   Income Taxes
     The Company files its U.S. federal income tax retum on a consolidated basis with its parent
     company and certain other subsidiaries of the parent company. Similarly the Company is included
     in the combined state and local income tax retums filed by the parent company and certain other
     subsidiaries of the parent company.

     As of October 31, 2018, income taxes receivable amounted to $5,242 and income taxes payable to
     parent company amounted to $9,510.

     Deferred income tax assets are recognized for temporary differences that will result in deductible
     a mounts in future periods. Deferred tax liabilities are recognized for temporary differences that will
     result in taxable amounts in future periods. Recorded in the deferred tax balances are differences
     between the tax bases of assets and liabilities and their financial reporting amounts at each period
     end based on enacted tax laws and statutory tax rates applicable to the periods in whjch the
     differences are expected to affect taxable income.

     As of October 31, 2018, the Company had deferred income tax assets totaling $595 and had no
     dcfcrrcd incomc tax liabilitics.

     As of October 31, 2018, the Company had no gross unrecognized tax benefits. The Company is
     currently under examination by the Internai Revenue Service for income tax retums for the years
     ended October 31, 2012 to 2016 and by New York State for income tax retums for the years ended
     October 3 1, 20 l 5 to 2017. The Company remains subj ect to examination by state, local and foreign
     tax authorities for income tax retums for the years ended October 31, 2014 to 2018, as well as for
     its U.S. federal iincome tax retum for the years ended October 31, 2017 and 2018.




                                             Page 17of19


NATIONAL BANK OF CANADA FINANCIAL INC.
Notes to Statement of Financial Condition
October 31, 2018
(lu Thousands of U.S. Dollars)



9.   Commitments and Contingencies
      Commitments
     As of October 31, 2018, the Company is committed under an operating lease for office facilities.
     The Company's future commitments are summarized below by year of expiration.


                      Year E nding on October 3151 of:                          $

                      2019                                                    1,203
                      2020                                                    l ,363
                      2021                                                    1,363
                      2022                                                    l ,363
                      2023                                                    1,363
                      Thereafter                                              7,500
                      Total minimum lease payments                           14,155


      Conttngencies
      The Company bel ieves, based on current knowledge and after consultation with counsel, that it is
      not currently party to any material pending legal proceedings, individually or in the aggregate, the
      resolution of which would have a material effect on the Company. Provisions for lasses are
      established in accordance with FASB ASC 450, "Accounting for Contingencies", when warranted.
      Once established, such provisions are adjusted when there is more information available or when
      an event occurs requiring a change.




                                              Page 18of19


NATIONAL BANK OF CANADA FINANCIAL INC.
Notes to Statement of Financial Condition
October 31, 2018
(In Thousands of U.S. Dollars)




10. Net Capital Requirement
     The Companyis subject to the Uniform Net Capital Rule (Rule 15¢3—1) under the Securities
     Exchange Act of 1934, which requires the maintenance of minimum net capital. A broker—dealer
     that fails to comply with Rule 15¢3—1 may be subject to disciplinary actions by the SEC and self—
     regulatory organizations, such as the FINRA, including censures, fines, suspension, or expulsion.
     The Company haselected to use the alternative method permitted by Rule 15¢3—1, which requires
     that the Company maintain minimum net capital, as defined, equal to $250.

     As of October 31, 2018, the Company had net capital, as defined, of $457,603, which was
     $457,353 in excess of its minimum net capital of $250.


11. 401(k) Plan
      The Company‘s 401(k) Plan (the "Plan") allows employees to participate after satisfying the
      requirements of being 21 years of age or older and completing one month of employment. The
      Company makes matching contributions to the Plan in the amount of 50% of the participant‘s
      contribution up to 6% ofthe participant‘s compensation.




                                            Page 19 of 19



Document Created: 2018-12-26 12:49:00
Document Modified: 2018-12-26 12:49:00
8-39947_Notes_SFC_2018.pdf NOTES TO PUBLIC STMT OF FINANCIAL CONDITION
8-39947_ACCT_RPT_FS_2018.pdf AUDITORS' REPORT ON CONFIDENTIAL FS
Additional Files
FileSequenceDescriptionTypeSize
0000835587-18-000012.txt   Complete submission text file   7608425
primary_doc.xml 1 X-17A-5 2375