FOCUS Report Rbc Capital Markets Arbitrage, S.a.

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

Published: 2012-02-23 15:10:48
Submitted: 2011-12-29
Period Ending In: 2011-10-31
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 RBC CAPITAL MARKETS ARBITRAGE                        S.A      SUBSIDIARY
An Indirect    Whoiiy Owned Subsidiary of       the    Royal   Bank   of Canada

                         SEC     I.D   No   8-65401




CONSOLIDATED           STATEMENT OF FINANCIAL                   CONDITION
                      AS OF OCTOBER 31 2011
                                   AND
                iNDEPENDENT AUDITORS                  REPORT
                      AND
    SUPPLEMENTAL REPORT ON INTERNAL CONTROL




     Filed    pursuant to Rule   17a-5e3      as      Public   Document


RBC CAPITAL MARKETS ARBITRAGE                          S.A       SUBSIDIARY
An   Indirect   Wholly Owned    Subsidiary   of   The Royal   Bank   of   Canada


TABLE OF CONTENTS




                                                                                      Page

INDEPENDENT AUDITORS           REPORT

CONSOLIDATED        STATEMENT     OF FINANCIAL        CONDITION

NOTES TO CONSOLIDATED           STATEMENT         OF FINANCIAL    CONDITION        3-10


SUPPLEMENTAL INTERNAL CONTROL                REPORT                                11-12


              101 tte                                                                                                                                 Deloitte          Touche
                                                                                                                                                        World      Financial     Center

                                                                                                                                                      New York NY            10281

                                                                                                                                                      USA

                                                                                                                                                     Tel           212-436-2000
                                                                                                                                                      Fax          212-436-5000
                                                                                                                                                     www.deloitte.com




INDEPENDENT                   AUDITORS REPORT


To    the   Board of     Directors             and   Stockholders          of

RBC Capital Markets Arbitrage S.A                                    Subsidiary
New York New York

We     have   audited the accompanying                         consolidated          statement        of financial       condition of          RBC         Capital           Markets

Arbitrage      S.A           Subsidiary the              Company                as   of October        31 2011           that   you     are filing       pursuant to Rule

17a-5 under          the Securities            Exchange         Act of 1934 This            consolidated            statement of financial                  condition            is


the responsibility           of the       Companys management                         Our   responsibility          is   to    express an opinion                  on   this

consolidated         statement of financial                condition based              on our audit


We     conducted       our audit          in   accordance           with auditing        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   consolidated           statement of financial                condition       is   free   of material         misstatement               An     audit

includes      consideration           of internal         control        over financial         reporting      as    basis       for   designing           audit

                                                                                         but not for the purpose                     of expressing          an opinion               on
procedures that are appropriate                       in the     circumstances

the effectiveness            of the       Companys             internal    control      over financial         reporting          Accordingly              we      express no
such    opinion       An     audit    also      includes        examining on              test   basis evidence               supporting        the    amounts            and

disclosures         in the   consolidated             statement of financial              condition          assessing         the    accounting        principles             used

and                     estimates          made by management                    as    well as evaluating           the       overall    consolidated              statement
       significant

of financial        condition presentation                     We   believe     that    our audit      provides           reasonable basis              for      our opinion



In    our opinion       such     consolidated             statement of financial                condition presents              fairly    in   all    material          respects
the financial        position        of   RBC        Capital     Markets        Arbitrage        S.A         Subsidiary          at   October        31     2011        in

                                                                                                  in the     United       States      of America
conformity with accounting                       principles         generally        accepted




                                                               up
December 20 2011




                                                                                                                                                 Member       of

                                                                                                                                                 Deloitte     Touche         Tohmatsu


RBC CAPITAL MARKETS ARBITRAGE                                                      S.A       SUBSIDIARY
An   Indirect         Wholly Owned               Subsidiary          of the Royal         Bank      of   Canada

CONSOLIDATED                 STATEMENT            OF FINANCIAL              CONDITION
OCTOBER 31              2011

In thousands             except share and per-share                   information




ASSETS

CASH                                                                                                                                 36



SECURITIES             OWNED              At   fair   value includes         securities   pledged    of   $1597099             6088143


OTC DERIVATIVES                   RECEIVABLE                                                                                     27498


OTHER ASSETS                                                                                                                     44217


TOTAL                                                                                                                         $6159894



LIABILITIES            AND STOCKHOLDERS                         EQUITY

LIABILITIES
 Bank   loan                                                                                                                   1945273
 Securities        sold but not yet       purchased            at   fair   value                                                762587
 OTC    derivatives         payable                                                                                              61777
 Payable      to    affiliates      net                                                                                          49788
 Accounts          payable and     accrued       liabilities                                                                     54604


        Total       liabilities                                                                                                2874029


LIABILITIES            SUBORDINATED                   TO CLAIMS OF GENERAL                    CREDITORS                        1350000


STOCKHOLDERS                      EQUITY
 Common stock              $1000    par value            150000       shares   authorized     issued      and   outstanding      150000
 Retained       earnings                                                                                                       1785865


        Total       stockholders      equity                                                                                   1935865


TOTAL                                                                                                                         $6159894



See notes to consolidated             statement of financial               condition




                                                                               -2-


RBC CAPITAL MARKETS ARBITRAGE                                                               S.A                SUBSIDIARY

An   Indirect        Wholly Owned                     Subsidiary             of   The Royal Bank                       of    Canada


NOTES TO CONSOLIDATED                              STATEMENT               OF FINANCIAL                      CONDITION
AS OF OCTOBER 31 2011
In thousands




     ORGANIZATION

     RBC      Capital     Markets           Arbitrage         S.A the          Company                   was incorporated                  on October               26 2001           as

     Societe         Anonyme              under       the   laws of the Grand Duchy                          of Luxembourg                 The Company                    is   an indirect

     wholly      owned        subsidiary           of the Royal         Bank        of Canada the                Bank                 foreign          corporation


     The Company              is     fully      disclosed broker-dealer registered                             with the Securities                    and    Exchange
     Commission and                is      member of           the Financial             Industry Regulatory                        FINRA The
                                                                                                                               Authority                                          Company
     clears    its   transactions           through         an affiliate       RBC         Capital       Markets           LLC RBC CM LLC or the                                  Clearing
     Broker

     The Company              is   engaged         in       single    line   of business               which     is   to trade        for      its   own     account            in securities

     and   commodities              including           but not limited            to    futures       contracts        and    options           thereon            The Company does
     not conduct        any        customer           business



     The consolidated               statement of financial                condition includes                   the    accounts            of   RBCCM            Holdco           Corp
     wholly      owned        subsidiary which has                      $10       investment            in     nonvoting            preferred           membership                interest   in

     RBC      CM LLC            The firm does not                receive       any       flow-through            capital       benefit          from the consolidation


     SUMMARY OF                     SIGNIFICANT                      ACCOUNTING                       POLICIES


     The consolidated               statement of financial                condition             is   prepared in conformity with accounting                                       principles

     generally       accepted           in the    United       States     of America                 which     require        management                to   make         estimates        and

     assumptions         that      affect       the   amounts         reported in the consolidated                         statement of financial                    condition and

     accompanying             notes       including           valuation        of certain            securities       owned         and     securities         sold but not yet

     purchased        and compensation                   accruals         Management                  believes        that    the    estimates          utilized          are    reasonable

     Actual     results    could differ from these                     estimates



     Proprietary        securities          transactions         in   regular-way            trades      are    recorded            on    the    trade       date    as    if   they had
     settled




     Securities       owned         and     securities        sold but not yet purchased                       are     valued        at   fair       value     Amounts            receivable

     and   payable for securities transactions                          that      have     not reached           their contractual                   settlement           date    are

     recorded net on the consolidated                          statement of financial                   condition in Payable                     to    affiliates               net



     Derivatives        are    shown         net      by counterparty             For each            counterparty            there       is     master netting                 agreement


     On November              14 2011            the    FINRA program                   staff   granted the firm continuance                            of membership with

     regard to expanding                  the   business activities               of the firm specifically                    becoming               an exchange-traded                    fund

     market maker             On November                   21 2011       the     firm was approved                   as      market           maker on         NYSE             Arca




                                                                                          -3-


The Company evaluated subsequent  events up to the                                   date      the   consolidated      statement        of financial

condition was issued which was December  20 2011

Recent Accounting             Pronouncements                         In    January 2010          the    Financial     Accounting        Standards Board

FASB       issued Accounting              Standards Update                  ASU No             2010-06 Improving              Disclosures         about     Fair

Value    Measurements             which amends Accounting                      Standards Codification                 ASC       820     Fair Value

Measurements          and Disclosures             to    add    new        requirements         for disclosures        about    transfers    into    and     out of
Levels      and       and    separate      disclosures         about        purchases          sales issuances         and    settlements        relating    to

Level     financial      instruments         It   also     clarifies existing           fair    value disclosures        about     the level      of

disaggregation        and    about      inputs    and     valuation techniques                 used to measure         fair   value     This guidance

became    effective      for the     Company on November                           2010        The adoption increased disclosures but did
not otherwise      significantly       affect the Companys                     consolidated            statement of financial         condition



RELATED-PARTY                     TRANSACTIONS

The Companys business                affairs are          managed          under   an agency           agreement      with     RBC    CM LLC           Under
the
      agency     agreement        RBC      CM LLC             acts    as   computation          agent     accounting         resource    risk
                                                                                                                                                  manager         and

executive      operational and           legal representative                for the    Company Commissions                     execution         fees and

management        fees      which    include       certain          compensation         costs       incurred by the          Company       are   paid to    RBC
CMLLC

The Company has             net   payables to          affiliates     representing          unsettled      security    transactions        and    other

borrowings       with    RBC      CM LLC          The average              monthly      balance        for these    payables      was

  November2010                                                                                                                                     278166
  December 2010                                                                                                                                   2057486
  January 2011                                                                                                                                    3356031
  February 2011                                                                                                                                   3325948
  March 2011                                                                                                                                      3082773
  April 2011                                                                                                                                      3755627
  May2011                                                                                                                                         4883411
  June    2011                                                                                                                                    4944546
  July 2011                                                                                                                                       4754366
  August 2011                                                                                                                                     3122490
  September       2011                                                                                                                            1156823
  October2011                                                                                                                                      261913




                                                                             -4-


SECURITIES              OWNED AND                  SECURITIES              SOLD BUT NOT YET PURCHASED

Securities     owned      and    securities        sold but not yet purchased                     at   October      31 2011       consisted principally              of

trading    securities     and    derivative        contracts       at   fair   value       as   follows



                                                                                                                                                     Sold But
                                                                                                                                                         Not Yet

                                                                                                                               Owned                 Purchased


   Exempted        securities

    U.S      government                                                                                                         39577                    41765
    U.S      government          agencies                                                                                 1519924
   Debt    securities

    Corporate bonds                                                                                                            138485                     84457
    Collateralized        mortgage          and    asset    backed                                                             232364
   Other securities

    Listed     equities                                                                                                   3528074                        629703
    Listed interest rate          futures     options                                                                        2893                          1007
    Listed equity options                                                                                                      626826                      5655


   Total                                                                                                                 $6088143                   $762587


The Company pledges               its   securities         owned     to collateralize            bank     loans    with an     affiliate     and    required

margin     with   RBC     CM LLC             The    fair    value of the securities owned                     by   the  Company            that   have   been

pledged      to counterparties          where those         parties have            the right to       sell   or   repledge was $1461003                   The
Clearing Broker         pledged         $136096       of the       Companys               securities    as collateral     under       its   stock lending          and

repurchase agreement              activity        which can be          sold    or    repledged by the secured                 party


OTC DERIVATIVES RECEIVABLE/PAYABLE

Over-the-counter          derivatives        receivable/payable                at   October       31 2011          consisted     of premium and             fair


value adjustments         on swaps          and    forward     contracts            are   as    follows



                                                                                                        Fair     Value   and Notional              Amounts
                                                                                                  Receivable             Payable              Notional             net


  Interestrate
                       swaps                                                                       $21224                $49752                    $28593
  Foreign      exchange         contracts                                                            5240                 10867                      3409
  Credit     default     swaps                                                                             379               1158                    12500
  Equity      forwards                                                                                     655                                       13158


  Total                                                                                            $27498                $61777                    $57660




                                                                           -5-


BANK LOANS

On     October        31 2011            the   Company maintained   $15000000 secured line of credit the Secured
Credit      Facility           with the        Bank Under this agreement this loan is callable at the discretion of the Bank

and      the   Company             does not pay interest                The outstanding              loan at October               31 2011 was $1945273
collateralized          with firm-owned                  securities       of   $1461003              The average             daily     balance      for this      loan   was

      November          2010                                                                                                                                 $4043986
      December 2010                                                                                                                                           4432942
      January 2011                                                                                                                                            5270016
                      2011
      February                                                                                                                                                4897598
      March 2011                                                                                                                                              3696800
      April 2011                                                                                                                                              3843534
      May2011                                                                                                                                                 4546266
      June 2011                                                                                                                                                   4180586
      July 2011                                                                                                                                                   4252705
      August2011                                                                                                                                                  3241052
      September         2011                                                                                                                                      1490017
      October     2011                                                                                                                                            1449722


TAXATION

Income         Taxes               The Company            is      fully   taxable Luxembourg                     resident       corporation          and     is                  in
                                                                                                                                                                  subject

Luxembourg              to    corporate        income tax municipal                   business tax and                 net    worth tax       The Company has
accrued          provision to cover                                            tax
                                                         Luxembourg                                                             year in the amount of
                                                   its                                 liability     for the current                                                 $2500


Withholding             Taxes              The Company             is     foreign          U.S     registered        broker and          dealer     that    trades

exclusively           for    its   own     account       As such         the   Company             does not have               U.S income            tax    liability       it   is
however         subject        to     withholding           tax   on    certain       of   its   dividend        and    interest       income


The Company has evaluated whether                                 any    unrecognized              tax    benefits      in    accordance         FASB ASC 740
                                                                                                                                                 with
Income Taxes                are    necessary and          determined           that    no such matters             exist      as   of October  31 2011 The
recognition and               measurement of unrecognized                        tax    benefits          will   be reevaluated           when new information is
available        if   applicable or when                 an event        occurs that requires                change


COMMITMENTS AND CONTINGENT                                                     LIABILITIES

The Company maintains                       an operating          lease for office               space in Luxembourg                   The    lease      commitment was
for three      years from February 2008                        until    February 2011               Thereafter          the    lease    renews       quarterly       until

notice     of cancellation            is   given      Lease       payments        are      approximately               $1.76    per    month        In   addition there               is


  monthly        rent        allocation        for the   New      York     office       space of approximately                       $10.03   per month


LIABILITIES                  SUBORDINATED                       TO CLAIMS OF GENERAL                                     CREDITORS

The Company has                     $100000          subordinated          loan agreement renewable                            on February          13 2012 with an
affiliate      Royal         Bank    Holding         Inc        Canadian         holding          company Under                 this   agreement            the   Company
does not pay           interest




The    Company has                  $500000          subordinated          loan agreement renewable                           on February           13 2012 with an
affiliate      RBC      Capital       Markets         Arbitrage         LLC           U.S        single    member limited               liability     company            Under
this   agreement             the Company must pay                   interest      equal      to the       one-month           floating     LIBOR           plus    166   basis

points     1.9          at    October 31 2011


                                                                                  -6-


     The Company has                         $750000              subordinated               loan agreement renewable                             on February               13 2013 with an
     affiliate       RBC       Capital         Markets              Arbitrage           LLC          U.S       single      member limited                              company Under
                                                                                                                                                               liability

     this   agreement              the    Company must pay                           interest    equal to the one-month floating                                  LIBOR plus 155 basis
     points     1.79             at   October31                 2011

     All    liabilities      subordinated                 to   claims of general creditors                           are   covered           by agreements                  approved    by the
     FINRA        and      are     thus      available            for    computing            the   Companys                net capital               pursuant to           the   Uniform Net

     Capital     Rule To              the extent           that      such      liabilities      are    required for the                 Companys                 continued           compliance
     with     minimum net                 capital     requirements                    they    may      not be repaid



10   NET CAPITAL REQUIREMENTS

     The Company               is     subject       to the          Securities         and     Exchange Commission Uniform Net                                           Capital      Rule

     Rule        5c3-            which        requires          the      maintenance             of    minimum net                capital             The Company has                 elected        to   use

     the alternative           method              permitted by                the    rule which requires                  that       the
                                                                                                                                             Company              maintain          the    greater       of

     2%     of aggregate debit                 balances             or   minimum net                capital      as     defined             equal to $250               At October          31 2011
     the    Company had                net capital             of    $2644602                 which was $2644352                        in    excess          of the required              minimum
     net capital




     Proprietary           accounts           held    at        clearing         broker        PAIB           are    considered              allowable            assets in the            net capital

     computation             Pursuant to an agreement                             between           the    Company              and    RBC            CM LLC RBC CM LLC                             is


     required to perform                      computation                 for    PAIB         assets      similar to the           customer              reserve        computation


11   FAIR      VALUE OF FINANCIAL INSTRUMENTS

     Substantially           all    of the         Companys               assets        and    liabilities      are carried            at    fair      value or contracted                  amounts
     that   approximate               fair    value



     Securities       owned           and     securities             sold but not yet purchased                         are     carried          at    fair   value        Fair    value     is


     generally       based         on quoted           market prices If quoted                         market         prices          are   not available               fair      value     is

     determined            based       on     other       relevant            factors including dealer                                                                                for
                                                                                                                           price      quotations               price     activity

     equivalent           securities          and     valuation               pricing    models


     Similarly the           Companys                                                           pursuant to bank loans
                                                      short-term               liabilities                                                    and       certain        other payables are

     recorded        at    contracted          amounts                                          fair   value         Bank        loans       are callable           at the discretion              of the
                                                                    approximating
     Bank      and   therefore            the carrying               amount approximates                      fair    value        With          respect        to other payables                 these

     instruments                               have       variable            interest               and
                           generally                                                      rates               short-term           maturities             in    many        cases    overnight
     and    accordingly             are    not materially                affected        by changes            in interest            rates



     The book value of $1250000                                 of    liabilities        subordinated            to    claims          of general             creditors        closely

     approximates            fair      value based              upon market              rates      of interest         available           to    the     Company            at    October        31
     2011      The book value of $100000                                 of     liabilities      subordinated              to    claims of general creditors                          is   non-

     interest-bearing              and       the   fair    value         is   $99900 The               fair   value        is   based       on        estimates        using present-value
     techniques           which        are significantly                  affected        by    the    assumptions               used concerning                   the      amount and            timing
     of estimated future                  cash      flows and            discount         rates



12   FINANCIAL INSTRUMENTS                                              WITH OFF-BALANCE-SHEET                                              RISK

     The Company maintains                          positions            in      variety       of financial           instruments                Certain instruments                       including
     equity derivative                products            give rise to off-balance-sheet                         risk Risk arises                      from changes               in the    value of
     the contracts          market risk                     and       also      from the potential                                 of counterparties                   to                   under        the
                                                                                                                 inability                                                   perform




                                                                                                 -7-


     terms of the contracts                  credit           risk           The Company attempts                             to   control          its    exposure         to   market risk

     through       use of           proprietary           trading           system      that    determines               whether              the   market          risk inherent              in the

     Companys             portfolios         is   within established                   limits




     Securities       sold but not yet purchased                               represent       obligations               of the       Company               to deliver           specified

     securities at contracted prices                           thereby creating                an     obligation              to   purchase           the securities             in the        market at

     prevailing       prices Consequently                           the     Companys                ultimate         obligation               to satisfy       the sale          of securities sold

     but not yet purchased                  may         exceed        the      amounts         recognized               in the       consolidated                  statement of financial
     condition



     ASC 815         Derivatives             and Hedging                    requires         that    all    derivatives              be recognized                 as either        assets       or

     liabilities     and be measured                    at   fair    value        The Company buys                           and     sells      derivative           financial          instruments

     for trading       purposes            solely       for    its   own        account        Trading            activities          include             equities          fixed       income
     exchange-traded                options        and       futures        contracts         on     equities          and     equity indexes                  and       OTC      equity            derivative

     contracts       with     affiliates          and     third parties




13   FAIR      VALUE MEASUREMENT

     Under     ASC 820              fair    value       is   defined           as the price          that    would be received                        to    sell    an    asset or       paid to
     transfer        liability        i.e     the       exit price               in    an orderly           transaction              between market                      participants           at    the

     measurement date                 ASC         820        establishes              hierarchy for inputs                     used in measuring                         fair   value that

     maximizes         the    use of observable inputs                           and       minimizes             the    use of unobservable                        inputs        by   requiring             that

     the   most observable                 inputs       be used when                 available            The hierarchy                  is   broken        down          into three       levels        based

     on    observability            of inputs        as      follows



     Level            Valuations             based        on quoted             prices       unadjusted                 in active             markets for identical                     assets or

     liabilities     that    the     Company              has the ability to access                         Valuation              adjustments              and     block        discounts            are    not

     applied to Level                 instruments               Since        valuations             are    based        on quoted             prices       that     are readily           and        regularly

     available       in   an active         market            valuation          of these       products             does not entail                      significant           degree         of

     judgment


     Level            Valuations             based        on one          or    more quoted               prices        in   markets that are not active                           or for       which         all


     significant      inputs         are    observable               either      directly       or indirectly



     Level            Valuations             based        on    inputs         that    are    unobservable                   and     significant            to the overall              fair   value

     measurement


     Determination            of    fair    value and           the resulting              hierarchy requires                      the    use of observable market                             data

     whenever available The                        classification               of     financial           instrument in the hierarchy                              is    based       upon      the     lowest
     level   of input        that    is                         to the         measurement of                 fair      value        Valuation                                     that                be
                                           significant                                                                                                     adjustments                         may
     made     to   ensure that            financial          instruments             are   reported          at   fair       value include



           Credit     valuation adjustments                          that    represent         the    estimated               fair   value of the credit risk of the external

           counterparties

           Credit     valuation adjustments                          to reflect        the    Companys                  credit       quality         in the       valuation of the

           Companys              liabilities


           Liquidity adjustments                     for financial              instruments               that    are    not quoted             in    an    active        market when                 the

           Company           believes         that      the    amount           realized       on     sale               be        less   than the estimated                             value due
                                                                                                                 may                                                             fair                         to

           low     trading       volumes




                                                                                               -8-


     Model         and    parameter adjustments                     to reflect        the    impact        of use of unobservable                             model inputs These

                                  necessary when
     adjustments           are                                   instruments           are      valued using model inputs                                 which      are    not observable

     and     are    subject       to significant           management judgment


   description           of the valuation            techniques           and       significant       assumptions                   applied to the                 Companys              major

categories       of assets and           liabilities       measured            at fair     value follows



Securities         Owned          and    Securities            Sold Not Yet Purchased


Exempted Securities

     U.S Government                  Treasury            Securities              U.S       Treasury         securities              are        valued using quoted                 market

     prices Accordingly                   U.S       Treasury        securities            are   generally categorized                           within        Level         of the       fair


     value hierarchy

     U.S Government                  Agencies                   Valuations          are   based      on both            proprietary               and       industry-recognized
     models        and     discounted         cash        flow techniques                 The most          significant                 inputs       to    the   valuation of these

     instruments           include       but are not limited                  to the      level    of interest rates                    and     spreads prepayment                      rates
     rates    of delinquency                and     default       and     loss      expectations            These            securities          are       generally categorized
     within Level                of the     fair    value hierarchy



Debt Securities


     Corporate           Bonds            The      fair    value of corporate                bonds         is   estimated using executed                             transactions

     market price           quotations            where observable                     bond spreads                or credit             default
                                                                                                                                                          swap     spreads adjusted
     for   any     basis    differences            between        cash        and    derivative        instruments                      Corporate           bonds     are    categorized
     within Level                of the     fair    value hierarchy

     Collateralized              Mortgage and             Asset Backed                     Valuations            are        based        on both           proprietary           and

     industry-recognized models                           and    discounted           cash      flow techniques                     The most               significant       inputs          to the

     valuation of these              instruments               include     but are not limited                   to the          level     of interest rates               and    spreads

    prepayment             rates rates          of delinquency                and     default       and     loss       expectations                  These         securities          are

    categorized            within Level              of the       fair    value hierarchy



Other Securities


    Exchange-Traded                  Equity         Securities                Exchange-traded                   equity           securities          are generally           valued based

    on     quoted        prices    from the exchange                     To    the    extent       these        securities          are        actively       traded        they are

    categorized            within Level              of the       fair    value hierarchy

    Listed Interest              Rate    Futures Options                      Listed interest rate                 futures              that    are actively         traded are valued

    based      on quoted           prices     from the exchange                     and    are generally               categorized               within Level                of the          fair


    value hierarchy

    Listed       Equity       Options               Listed       equity       options       that    are    actively              traded are valued based                         on quoted
    prices       from the exchange                  and    are    categorized             within Level                  of the          fair    value hierarchy                  All other

    listed    equity options              are classified           within Level                  of the     fair    value hierarchy

    OTC       Derivatives                 OTC       derivatives           contracts         include        interest              rate    swaps            credit   default        swaps
    foreign        exchange          contracts           and     equity       forwards          Depending              on        the     product          and terms of            the

    transaction the               fair   value of the           OTC       derivative            products         can        be    either        observed           or modeled            using
    series     of techniques             using observable inputs                       OTC         derivative           products               are   categorized            within

    Level          of the     fair   value hierarchy



The following            table    presents         the    financial       instruments             measured             at    fair       value at October              31 2011
categorized        by    the valuation             hierarchy set out in               ASC 820



                                                                                     -9-


Securities      owned
 Exempted           securities

   U.S government                                                 36722          2855                      39577
   U.S government                 agencies                                   1519924                    1519924
 Debt       securities

   Corporate         bonds                                                     138485                     138485
   Collateralized          mortgage          and
    asset     backed                                                          232364                      232364
 Other securities

   Listed     equities                                        3336893          191181                   3528074
   Listed     interest     rate    futures     options               2893                                   2893
   Listed     equity      options                                     966     625860                      626826
                                                                                         __________
Total    securities      owned                                3377474        2710669                    6088143

OTC      derivatives       receivable

 Credit      default                                                               379                        379
                         swaps
 Interest     rate    swaps                                                     21224                     21224
 Foreign       exchange       contracts                                          5240                       5240
 Equity      forwards                                                              655                        655
                                                            __________                   __________

            Total    OTC     derivatives       receivable                      27498                      27498

Total                                                       $3377474        $2738167                   $6115641

Securities     sold but not yet purchased
 Exempted           securities

  U.S government                                                 41765                                    41765
  U.S government                  agencies

 Debt     securities

  Corporate          bonds                                                     84457                      84457
  Collateralized           mortgage      and

    asset     backed

  Foreign       government           obligations
 Other      securities

  Listed      equities                                          629703                                   629703
  Listed      interest     rate    futures    options                1007                                   1007
  Listed      equity     options                                                 5655                      5655
                                                            ___________                  ___________

          Total      securities      sold but not

             yet purchased                                      672475         90112                     762587

OTC      derivatives       payable

 Creditdefaultswaps                                                              1158                      1158
 Interest     rate    swaps                                                    49752                      49752
 Foreign      exchange        contracts                                        10867                      10867
                                                            __________                   __________
          Total      OTC    derivatives        payable                         61777                      61777

Total                                                           672475        151889                     824364




                                                                10


                   01 tte                                                                                                                                            Deloitte

                                                                                                                                                                        World     Financial      Center

                                                                                                                                                                     New York NY              10281

                                                                                                                                                                     USA

                                                                                                                                                                    Tel            212-436-2000
                                                                                                                                                                     Fax           212-436-5000
                                                                                                                                                                    www.deloitte.com




December           20    2011




RBC      Capital        Markets          Arbitrage         S.A              Subsidiary

One Liberty Plaza

New York New                   York 10006


In    planning         and    performing           our audit          of the consolidated                    financial        statements of            RBC         Capital         Markets

Arbitrage         S.A           Subsidiary the              Company                      as    of and for the year ended                    October           31     2011         on     which

we     issued our report              dated December                  20 2011             and       such    report      expressed an unqualified opinion                                 on those
consolidated            financial         statements             in   accordance               with auditing           standards          generally           accepted          in the        United

States     of America               we    considered the              Companys                 internal       control        over financial            reporting          internal

control          as      basis      for    designing        our auditing                procedures            for the
                                                                                                                         purpose          of expressing              an opinion               on      the

consolidated            financial         statements        but not for the purpose                           of expressing           an opinion             on   the    effectiveness                 of

the    Companys              internal       control       Accordingly                   we     do    not express an            opinion      on     the effectiveness                    of the

Companys               internal      control



Also      as    required by Rule               17a-5gl                 of the Securities                and    Exchange Commission the                               SEC           we        have

made           study of the practices               and     procedures              followed            by    the    Company           including consideration                           of

control        activities      for    safeguarding              securities          This       study included            tests       of compliance              with such practices

and     procedures           that    we     considered relevant                    to the objectives                stated    in   Rule     17a-5g            in   making              the

periodic        computations               of aggregate debits                and       net     capital      under      Rule         7a-3a 11             and      for     determining

compliance             with the exemptive                 provisions of Rule                        5c3-3      We      did not review             the    practices          and

procedures            followed        by    the    Company             in   making            the quarterly          securities       examinations                 counts

verifications           and     comparisons               and    the    recordation                 of differences           required by Rule                  7a-    13    or in

complying          with the requirements                    for       prompt payment                   for securities          under      Section             of Federal Reserve

Regulation              of the Board of Governors                           of the Federal Reserve                      System because                  the    Company does                     not

          securities          accounts       for   customers or perform                         custodial        functions          relating      to    customer           securities
carry



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 controls

and     of the practices             and    procedures           referred          to    in the       preceding        paragraph and              to assess          whether            those

practices        and    procedures            can be      expected            to   achieve           the    SECs       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               use or disposition                and       that    transactions          are    executed        in   accordance               with

managements                  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          7a-


5g      lists    additional          objectives       of the practices                  and     procedures           listed in the         preceding           paragraph



Because         of inherent          limitations          in internal         control          and     the practices           and    procedures referred                    to        above
error    or    fraud     may        occur    and not be detected                     Also           projection       of any        evaluation          of them to future                     periods
is   subject     to the       risk that      they     may become               inadequate because                     of changes           in conditions             or that           the

effectiveness           of their design and                operation           may        deteriorate




                                                                                               11-
                                                                                                                                                                    Member        of


                                                                                                                                                                    Deloitte      Touche       Tohmatsu


     deficiency        in internal           control        exists      when        the   design or operation                     of         control     does not allow

management             or    employees               in the      normal           course of performing                  their      assigned functions                   to   prevent       or

detect    and     correct         misstatements                 on      timely basis                   sign fIcant deficiency                    is      deficiency          or

combination            of deficiencies                in internal           control       that    is   less   severe than                    material     weakness            yet    important

enough to merit attention                       by those charged                   with governance



     material weakness                  is     deficiency              or   combination               of deficiencies              in internal           control        such that      there    is


     reasonable possibility that                          material          misstatement              of the companys                   financial        statements will not be

prevented         or detected and               corrected             on      timely basis


Our consideration                 of internal          control         was    for the limited
                                                                                                            purpose         described            in the    first      and    second

paragraphs and              would not           necessarily             identify       all   deficiencies             in internal             control     that    might be          material

weaknesses          We       did not identify                   any    deficiencies          in internal         control          and        control     activities         for

safeguarding           securities            that    we     consider         to    be material          weaknesses                as    defined        above


We     understand that practices                       and      procedures           that    accomplish              the objectives              referred        to    in the     second

paragraph of this report                     are     considered by the                SEC        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            material          inadequacy          for     such      purposes
Based on        this   understanding                  and       on our study           we    believe          that    the    Companys                  practices       and    procedures
as   described in the second                        paragraph of this report                     were adequate               at    October            31 2011          to   meet     the   SECs
objectives



This report       is   intended                        for the         information and use of the Board of Directors                                                                   the
                                         solely                                                                                                              management
SEC      Financial          Industry Regulatory                       Authority           Inc and           other     regulatory              agencies      that      rely   on Rule
 7a-5g       under          the   Securities           Exchange Act of 1934                        in their regulation                  of registered            broker-dealers and             is

not intended to be                and    should not be                 used by anyone                 other   than these           specified            parties



Yours     truly




                       cHe




                                                                                                 12



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