FOCUS Report Mufg Securities Americas Inc.

X-17A-5 [Paper] - FOCUS Report

Published: 2005-05-17 15:39:14
Submitted: 2005-04-29
Period Ending In: 2005-02-28
scanned.pdf Scanned paper document

                         2.                      in                                                         mM 51742005 %5                      _
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                              9 2005 _ ANNUAL AUDITED REPORT                                                  SEC FILE NUMBER
                     APR 2                        FORM X—17A—5                                         T .$3026                       *
               q4 EXAMINA
                                     ATIONS             PART IHJ
                                                      FACING PAGE
                                                                                 sest AVAILAP                 C

                         Information Required of Brokers and Dealers Pursuant to Section 17 of the
                                   Securities Exchange Act of 1934 and Rule 17a—5 Thereunder

REPORT FOR THE PERIOD BEGINNING                         3/01/04                                                  AND ENDINGL—             728/05) _

                                             A. REGISTRANT IDENTIFICATION

                              Mitsubishi Securities (USA), Inc.              >                                 OFFICIAL USE ONLY

                                                                                                                   FIRM ID. NO.

1251 Avenue of the Americas — 11th Floor                                                        BRNCESSED)
                                                                  (No. and Street)

New York                                               New York                           :\ / JUN 1 5 2015                 10020
     (City)                                             (State)                           <\Z        THOMSON             (Zip Code)


John DeMasi                                                                                                   (212) 782—6863
                                                                                                                       (Area Code —— Telephone No.

                           B. ACCOUNTANT IDENTIFICATION
INDEPENDENT PUBLIC ACCOUNTANT whose opinion is contained in this Report*

Deloitte & Touche LLP
                                      (Name — if individual, state last, first, middle name)
2 World Financial Center                New York                         New York                                 10281—1414
    {(Address)                              (City)                                    (State)                  (Zip Code)
       Certified Public Accountant

      D Public Accountant

      D Accountant not resident in United States or any of its possessions.

                                                      FOR OFFICIAL USE ONLY

*Claimsfor exemption from the requirement that the annual report be covered by the opinion ofan independent public accountant
 must be supported by a statement offacts and circumstances relied on as the basis for the exemption. See section 240.17a—5(e)(2).
SEC 1410 (06—02)


We, Keizo lijima and Teruaki Fyjimoto, affirm that, to the best of our knowledge and belief, the
accompanying financial statements and supplemental schedules pertaining to Mitsubishi Securities (USA),
Inc. (a wholly—owned subsidiary of Mitsubishi Securities Co., Ltd.] at and for the year ended February 28,
2005, are true and correct. We further affirm that neither the Company nor any officer or director has any
proprietary interest in any account classified solely as that of a customer.

                                                            %7%—- April 26, 2005
                                                         Mr. Keizo Iijima                          Date

                                                         Title   /

                                                                                            April 26, 2005
                                                         Mr. Teruaki Fujimoto                      Date

                                                         Executive Vice President

Subscribed and sworn to before me on
this   _3 ~___day of April 2005

Notary Public

                NANCY MALLM MORTON
         i NOTARY PUBLIC, State of New York
         .          No.01M04934097
          S Quatified in New York County
           Commission Expires June 13, 2006

      (A wholly—owned subsidiary of Mitsubishi Securities Co., Ltd.)

                AS OF FEBRUARY 28, 2005

                              * woth k ow k
1 h

            _ Filed pursuant to Rule 17a—5(e)(3) under the
                    Securities Exchange Act of 1934
                      as a PUBLIC DOCUMENT.

     Deloitte.                                                                                   Two World Financial Center
                                                                                                 New York, NY 10281—1414
                                                                                                 Tel: +1 212 436 2000
                                                                                                 Fax: +1 212 436 5000

                                         INDEPENDENT AUDITORS‘ REPORT

     To the Board of Directors and Stockholder of
     Mitsubishi Securities (USA), Inc.

     We have audited the accompanying statement of financial condition of Mitsubishi Securities (USA), Inc. (the
     "Company") (a wholly owned subsidiary of Mitsubishi Securities Co., Ltd.) as of February 28, 2005, that you
     are filing pursuant to Rule 17a—5 under the Securities Exchange Act of 1934. This financial statement is the
     responsibility of the Company‘s management. Our responsibility is to express an opinion on this financial
     statement based on our audit.

     We conducted our audit in accordance withauditing standards generally accepted in the United States of
     America. Those standards require that we plan and perform the audit to obtain reasonable assurance about
     whether the financial statement is freeof material misstatement. An audit includes consideration of internal
     control over financial reporting as a basis for designing audit procedures that are appropriate in the
     circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company‘s
     internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes
     examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement,
     assessing the accounting principles used and significant estimates made by management, as well as evaluating
     the overall financial statement presentation. We believe that our audit provides a reasonable basis for our

     In our opinion, such statement of financial condition presents fairly, in all material respects, the financial
     position of Mitsubishi Securities (USA), Inc. at February 28, 2005, in conformity with accounting principles
     generally accepted in the United States ofAmerica.

     DeAsitk 4 Tiete Lif

     April 26, 2005

                                                                                                Member of
                                                                                                Deloitte Touche Tohmatsu

(A wholly—owned subsidiary of Mitsubishi Securities Co., Ltd.)

FEBRUARY 28, 2005


Cash and cash equivalents                                                            13,184,784
Cash deposited with clearing organization                                               500,000
Securities owned (100% was pledged to various parties)                                9,906,250
Securities purchased under agreements to resell                                   1,274,025,949
Securities received as collateral                                                    14,665,708
Securities borrowed —                                                                13,631,195
    Brokers, dealers and clearing organization                                     336,290,911
    Customers                                                                          227,667
    Affiliates                                                                       3,898,778
Interest receivable                                                                  1,151,966
Furniture, equipment and leasehold improvements, at cost (less accumulated
  depreciation and amortization of $2,826,620)                                         950,045
Deferred tax asset                                                                     772,307
Other assets                                                                           754,836
TOTAL ASSETS                                                                 $    1,669,960,396


Securities sold under agreements to repurchase                                    1,206,180,571
Securities sold, but not yet purchased                                               18,721,523
   Brokers and dealers                                                             349,403,445
    Customers                                                                           15,675
    Affiliates                                                                         805,470
Interest payable                                                                       894,055
Obligation to return securities received as collateral                              14,665,708
Accrued expenses and other liabilities                                               2,938,239

 Total liabilities                                                                1,593,624,686

Common stock, no par value;
   2,000 shares authorized, 690 shares outstanding                                  69,000,000
Retained earnings                                                                    7,288,210
Accumulated other comprehensive income                                                  47,500

 Total stockholder‘s equity                                                         76,335,710

TOTAL LIABILITIES AND STOCKHOLDER‘S EQUITY                                       1,669,960,396

See notes to statement of financial condition.

     (A wholly—owned subsidiary of Mitsubishi Securities Co., Ltd.)


     FEBRUARY 28, 2005


          Mitsubishi Securities (USA), Inc. (the "Company*"‘) is a wholly—owned subsidiary of Mitsubishi

          Securities Co., Ltd. ("MS"), a publicly traded company in Japan which is majority owned by The Bank
          of Tokyo—Mitsubishi, Ltd. ("BTM"). BTM is a wholly—owned subsidiary of Mitsubishi Tokyo Financial
          Group, Inc.

          The Company is registered as a broker—dealer pursuant to Section 15b under the Securities Exchange Act
          of 1934 and is a member of the National Association of Securities Dealers, Inc. The Company engages
          in financing and securities borrowed transactions, domestic and foreign equity securities transactions as
          agent, principal and agency transactions in debt securities, private placements, and investment banking
          activities.                                                                                     ‘

          Use ofEstimates — The preparation of the Statement of Financial Condition in conformity with
          accounting principles generally accepted in the United States ofAmerica requires management to make
          estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of
          contingent assets and liabilities at the date of Statement of Financial Condition. Management believes
          that the estimates utilized in the preparation of the Statement of Financial Condition are prudent and
          reasonable. Actual results could differ materially from these estimates.

          Securities Transactions — Customer securities transactions are recorded on a settlement date basis.
          Securities transactions of the Company are recorded on a trade date basis.

          Cash and Cash Equivalents — The Company defines cash and cash equivalents as highly liquid
          investments with original maturities of three months or less at the time of purchase.

          Cash Deposited with Clearing Organization — Cash deposited with clearing organization represent
          funds deposited with Fixed Income Clearing Corporation for Company‘s trading activities.

          Securities Purchased UnderAgreements to Resell and Securities Sold Under Agreements to
          Repurchase — Securities purchased under agreements to resell ("reverse repurchase agreements") and
          securities sold under agreements to repurchase ("repurchase agreements"), principally U.S. government
          and federal agency securities, are treated as operating transactions and are carried at the amounts at
          which the securities will be subsequently reacquired or resold, including accrued interest, as specified in
          the respective agreements. Additionally, the Company takes possession of the securities purchased
          under agreements to resell at the time such agreements are made. In the event the market value of such
          securities falls below the related agreement to resell at contract amounts plus accrued interest, the
          Company will generally request additional collateral.

          Reverse repurchase and repurchase agreements are reported on a net—by—counterparty basis, when
          applicable, pursuant to the provisions of Financial Accounting Standards Board ("FASB") Interpretation
          No. 41, "Offsetting ofAmounts Related to Certain Repurchase and Reverse Repurchase Agreements."

          Securities Owned, and Securities Sold, But Not Yet Purchased — Marketable securities owned, and
          securities sold, but not yet purchased, consist of trading securities at market values as follows:

                                                           —3 .

                                           Securities Owned                  Securities Sold, But Not Yet

 U.S. Treasury Notes                           $ 9,906,250                           $ 18,721,523

Securities Borrowed — The Company enters into securities borrowed transactions to finance firm
inventory positions and obtain securities for settlement.

Derivative Instruments — All derivatives, primarily exchange traded futures, are recognized on the
statement of financial condition at their fair value. The reported receivables (unrealized gains) and
payables (unrealized losses) related to derivatives are reported in receivables from brokers, dealers, and
clearing organization in the Statement of Financial Condition.

Interest Receivable and Payable — Interest receivable and payable consist mainly of interest accrued on
repurchase agreements, reverse repurchase agreements, securities owned, and securities sold, but not yet

Furniture, Equipment and Leasehold Improvements — Furniture and equipment are depreciated on a
straight—line basis over the estimated useful lives of 3 to 6 years, and leasehold improvements are
amortized on a straight—line basis over the lesser of the economic useful life of the asset or, where
applicable, the remaining term of the lease.

Comprehensive Income — Comprehensive income consists of minimum pension liability adjustments.

Foreign Exchange — Assets and liabilities denominated in non—U.S. dollar currencies are translated into
U.S. dollar equivalents using year—end spot foreign exchange rates.

Transfers and Servicing ofFinancial Assets and Extinguishments ofLiabilities — The Company
follows Statement of Financial Accounting Standards ("SFAS") No. 140, "Accountingfor Transfers and
Servicing ofFinancial Assets and Extinguishments ofLiabilities — a Replacement ofFASB Statement No.
125," to account for transfers of financial assets and collateral. SFAS No. 140 establishes accounting
and reporting standards with a financial—components approach that focuses on control. Under this
approach, financial assets or liabilities are recognized when control is established and derecognized
when control has been surrendered or the liability has been extinguished. In addition, specific
implementation guidelines have been established to further distinguish transfers of financial assets that
are sales from transfers that are secured borrowings.

Receivables and Payables — Customers — The amounts shown represent the receivable from and payable
to customers in connection with securities transactions executed on a receive versus payment or delivery
versus payment basis.

Receivables and Payables — Brokers, Dealers and Clearing Organization — Receivables from brokers,
dealers and clearing organization include amounts receivable for securities not delivered by the
Company to a purchaser by the settlement date, and net receivables arising from unsettled trades.
Payables to brokers and dealers include amounts payable for securities not received by the Company
from a seller by the settlement dates:

The Company has entered into related party transactions with affiliates, including MS. These
transactions include facilitating securities transactions for affiliates, repurchase and reverse repurchase
agreements, advisory services, clearing and operational support.

     At February 28, 2005, assets and liabilities with related parties consist of the following:

     Cash                                                                         586,840
     Securities purchased under agreements to resell                           26,433,125
      Brokers, dealers and clearing organization                                2,463,525
      Customers                                                                    40,559
      Affiliates                                                                3,898,778
     Interest receivable                                                            2,938

     Total                                                                     33,425,765

     Securities sold under agreements to repurchase                           141,054,337

      Brokers and dealers                                                         227,670
      Customers                                                                     8,020
      Affiliates                                                                  805,470
     Interest payable                                                              99,139
     Accrued expenses and other liabilities                                       258,706

     Total                                                                    142,453,342


     Income taxes are recorded in accordance with the asset and liability method under SFAS No. 109,
     "Accountingfor Income Taxes."

     Net deferred tax assets as of February 28, 2005 has the following components:

                                                                                  State & Local         Total
     Deferred tax asset                                                                 171,000           943,000
     Valuation allowance                                                              (171,000)          (171,000)
     Net deferred tax asset                                                                               772,000


     Market Risk — In the normal course of business, the Company enters into both the purchase and sale of
      securities transactions in a variety of financial instruments with market risk in order to meet its financing
      and hedging needs, to reduce its exposure to market and interest rate risk, and in connection with its
     normal proprietary trading activities. In connection with the Company‘s short sales of securities, the
      Company may be required to purchase securities at unfavorable market prices to satisfy obligations to

     Credit Risk — The contract amounts of these instruments reflect the Company‘s extent of involvement in
     the particular class of financial instrument and do not represent the Company‘s risk of loss due to
     counterparty nonperformance. The Company‘s exposure to credit risk associated with counterparty
     nonperformance is limited to the amounts reflected in the Company‘s Statement of Financial Condition.

                                                       — 5.

      The settlement of these transactions does not have a material effect upon the Company‘s Statement of
      Financial Condition. Risk arises from the potential inability of counterparties to perform under the terms
      of the contracts and from changes in interest rates.

      Customer Securities Transactions — In the normal course of business, the Company‘s client activities
      involve the execution and settlement of various client securities transactions. These activities may
      expose the Company to off—balance—sheet risk in the event the client is unable to fulfill its contracted

      In accordance with industry practice, the Company records client securities transactions on a settlement
      date basis, which is generally within one to three business days after trade date. The Company is
      therefore exposed to risk of loss on these transactions in the event of the client‘s or broker‘s inability to
      meet the terms of their contracts in which case the Company may have to purchase or sell financial
      instruments at prevailing market prices. Settlement of these transactions is not expected to have a
      material impact upon the Company‘s Statement of Financial Condition and the Company has not

      accrued a liability for these transactions.

      Securities Financing Transactions — The Company enters into reverse repurchase agreemenits,
      repurchase agreements and securities borrowed transactions to, among other things, finance the
      Company‘s inventory positions, acquire securities to cover short positions and settle other securities
      obligations and to accommodate customers‘ needs. Under these agreements and transactions, the

      Company either receives or provides collateral, including U.S. government and agency securities. The
      Company receives collateral in the form of securities in connection with reverse repurchase agreements
      and securities borrowed transactions. In many cases, the Company is permitted to sell or repledge these
      securities held as collateral and use the securities to secure repurchase agreements, to enter into
      securities lending transactions or for the delivery to counterparties to cover short positions. At February
      28, 2005, the fair value of securities received as collateral, prior to netting pursuant FASB Interpretation

      No. 41, where the Company is permitted to sell or repledge the securities was approximately
      $3,884,148,000, and the fair value of the portion that has been sold or repledged was approximately
      $3,842,075,000.                                                                                           |

      On the Statement of Financial Condition, the Company recognized the fair value of an asset for
      securities received as collateral (as opposed to cash received as collateral) in certain securities lending
      transactions, and a corresponding liability, obligation to return securities received as collateral.

      In the event the counterparty is unable to meet its contracted obligation to return securities pledged as
      collateral, the Company may be exposed to the risk of acquiring the securities at prevailing market prices
      in order to satisfy its obligations. The Company seeks to control risks associated with repurchase
      agreements, by monitoring the market value of securities pledged on a daily basis and by requiring
      additional collateral to be deposited with or returned to the Company when deemed necessary.
      Additionally, the Company establishes credit limits for such activities and monitors compliance on a
      daily basis.


      Leases — BTM provides office space and certain administrative services to the Company under formal
      agreements. The Company‘s lease for office space expires on September 29, 2008.


      For cash and cash equivalents, repurchase and reverse repurchase agreements, securities borrowed, and
      receivables and payables from brokers, dealers, affiliates and clearing organization, carrying values are
      reasonable estimates of fair value. Taken together, financial instruments recorded at market or fair value

                                                      —   -6-

     and financial instruments recorded at amounts which approximate market or fair value, represent
     substantially all recorded assets and liabilities.

     In the normal course of business the Company trades in U.S. Government and agencies securities and
     derivative products (interest rate futures). In addition, the Company will perform principal transactions
     in various financial instruments.


     Eligible employees of the Company are covered under a defined benefit plan, postretirement medical and
     life insurance benefits, and a 401—K Savings and Investment Plan (the "Retirement Savings Plan"),
     sponsored by BTM. Annual contributions are based on an amount that satisfies ERISA funding

     The accumulated other comprehensive income of $47,500, included in the Statement of Financial

     Condition, resulted from the recognition of the reversal of the minimum pension liability consisting of a
     previous prepaid benefit cost of $164,062. A minimum pension liability adjustment is required when the
     actuarial present value of accumulated benefits exceeds plan assets and the amount of such underfunding
     exceeds accrued pension liabilities.


     As a broker—dealer, the Company is subject to the Uniform Net Capital Rule (Rule 15c3—1) under the
     1934 Act which requires the maintenance of minimum net capital in accordance with a formula set forth
     therein. The Company calculates net capital under the alternative method permitted by rule 15¢c3—1
     which requires the Company to maintain net capital, as defined, of the greater of 2% of aggregate debit
     balances arising from customer transactions pursuant to Rule 15¢c3—3 under the 1934 Act, or $250,000.©
     At February 28, 2005, the Company had net capital of $35,494,818 which was $35,244,818 in excess of
     the requirements of $250,000.

                                                    t ob s oi i

      e    OI           eO                                          |                    Deloitte & Touche LLP
                                                                                         Two World Financial Center
                                                                                         New York, NY 10281—1414
                                                                                         Tel: +1 212 436 2000
                                                                                         Fax: +1 212 436 5000

      April 26, 2005

      Mitsubishi Securities (USA), Inc.
      1251 Avenue of the Americas
      New York, NY 10020

      In planning and performing our audit of the financial statements of Mitsubishi Securities (USA), Inc. (the
      "Company") (a wholly—owned subsidiary of the Mitsubishi Securities Co., Ltd.) for the year ended February
      28, 2005 (on which we issued our report dated April 26, 2005), we considered its internal control, including

      control activities for safeguarding securities, in order to determine our auditing procedures for the purpose of
      expressing an opinion on the financial statements and not to provide assurance on the Company‘s internal

      Also, as required by Rule 17a—5(g)(1) under the Securities Exchange Act of 1934, we have made a study of
      the practices and procedures followed by the Company (including tests of compliance with such practices

      and procedures) that we considered relevant to the objectives stated in Rule 17a—5(g): (1) in making the
      periodic computations of aggregate debits and net capital under Rule 17a—3(a)(11) and the reserve required by
      Rule 15c3—3(e); (2) in making the quarterly securities examinations, counts, verifications and comparisons,
      and the recordation of differences required by Rule 17a—13; (3) in complying with the requirements for
      prompt payment for securities under Section 8 of Regulation T of the Board of Governors of the Federal
      Reserve System; and (4) in obtaining and maintaining physical possession or control of all fully paid and
      excess margin securities of customers as required by Rule 15c3—3.

      The management of the Company is responsible for establishing and maintaining internal control and the
      practices and procedures referred to in the preceding paragraph. In fulfilling this responsibility, estimates and
      judgments by management are required to assess the expected benefits and related costs of internal control
      and of the practices and procedures, and to assess whether those practices and procedures can be expected to
      achieve the Securities and Exchange Commission‘s (the "Commission") above—mentioned objectives. Two of
      the objectives of internal control and the practices and procedures are to provide management with
      reasonable, but not absolute, assurance that assets for which the Company has responsibility are safeguarded
      against loss from unauthorized acquisition, use, or disposition, and that transactions are executed in
      accordance with management‘s authorization and recorded properly to permit the preparation of financial
      statements in conformity with accounting principles generally accepted in the United States of America. Rule
      17a—5(g) lists additional objectives of the practices and procedures listed in the preceding paragraph.

      Because of inherent limitations in any internal control or the practices and procedures referred to above,
      misstatements due to error or fraud may occur and not be detected. Also, projections of any evaluation of the
      internal control or of such practices and procedures to future periods are subject to the risk that they may
      become inadequate because of changes in conditions or that the degree of compliance with the practices or
      procedures may deteriorate.

      Our consideration of the Company‘s internal control would not necessarily disclose all matters in the
      Company‘s internal control that might be material weaknesses under standards established by the American
      Institute of Certified Public Accountants. A material weakness is a condition in which the design or
      operation of one or more of the internal control components does not reduce to a relatively low level the risk

                                                                                         Member of
                                                                                         Deloitte Touche Tohmatsu

     Mitsubishi Securities (USA), Inc.
     April 26, 2005
     Page 2

     that misstatements caused by error or fraud in amounts that would be material in relation to the financial
     statements being audited may occur and not be detected within a timely period by employees in the normal
     course of performing their assigned functions. However, we noted no matters involving the Company‘s
     internal control and its operation, including control activities for safeguarding securities, that we consider to
     be material weaknesses as defined above, However, we noted during the period from March 1, 2004 until
     April 26, 2005, the Company had not met the deposit requirements required by SEC Rule 15c3—3.
     Additionally, no deposits, as required by SEC Rule 15c3—3, have been made as ofApril 26, 2005.

     We understand that practices and procedures that accomplish the objectives referred to in the second
     paragraph ofthis report are considered by the Commission to be adequate for its purposes in accordance with
     the Securities Exchange Act of 1934 and related regulations, and that practices and procedures that do not
     accomplish such objectives in all material respects indicate a material inadequacy for such purposes. Based
     on this understanding and on our study, we believe that the Company‘s practices and procedures were
     adequate at February 28, 2005, to meet the Commission‘s objectives.

     This report is intended solely for the information and use of the board of directors, management, the
     Securities and Exchange Commission, the National Association of Securities Dealers, Inc., and other
     regulatory agencies that rely on Rule 17a—5(g) under the Securities Exchange Act of 1934 in their regulation
     of registered brokers and dealers, and is not intended to be and should not be used by anyone other than these
     specified parties.

     Yours truly,
     PBPutlontle 4 TrookAa iiP

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