FOCUS Report Rbc Capital Markets Arbitrage, S.a.

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

Filed: 2013-01-24 09:15:19
Dated: 2012-12-28
Period of Report: 2012-10-31
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                                                               FORM X-17A-5                                                                                            SEC   FILE   NUMBER
                                                                                    PART                   HI
                                                                                                                                                                     1T
                                                                               FACENG                 PAGE
                      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                                                                         AND      ENDG
                                                                                     MMIDD/YY                                                                   MMIDDIYY


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                   Public    Accountant                                                                                                    DEC    8ZO1Z
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                                                                      AFFIRMATION

                                                                                        and                 the                      consolidated
     Peter          Justini        affirm   that to the best of      my knowledge              belief             accompanying
   financial    statements and              supplemental        schedules pertaining     to   RBC      Capital     Markets     Arbitrage    S.A

   Subsidiary as of and              for the       year ended October        31 2012    are   true    and    correct       further   affirm that

                                                                             has any proprietary        interest    in         account   classified
   neither    the    Company           nor any       officer   or director                                               any

   solely    as that   of      customer




                                                                                                                                          Date
                                                                               Signat




                                                                              Peter     Justini

                                                                              Chief Financial        Officer




                    Notary     Public




       EDWIN         BALDWIN
Notary Pubflc       Slate     of    New     York

     Reg        O1BA4923
  uaIitted     in

  ornmissio Exprc
                    Nassau         cj
                               /f    if 1/3


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

                        SEC     I.D   No     8-65401




CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
            AS OF OCTOBER 31 2012
                                      AND
               INDEPENDENT         AUDITORS REPORT
                                      AND
    SUPPLEMENTAL REPORT ON INTERNAL                          CONTROL




     Filed   pursuant to Rule    7a-5e3        as   PublicDocument


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


                                                                                                                                                           Detoitte        Touche

            eioitte                                                                                                                                        Two World Financial
                                                                                                                                                           New York NY 10281
                                                                                                                                                                                           Center



                                                                                                                                                           USA

                                                                                                                                                           Tel     21 2-436-2000

                                                                                                                                                           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 2012             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

                    that    are                      in the     circumstances           but        not    for the                       of expressing            an   opinion          on
procedures                        appropriate                                                                           purpose
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    significant         estimates      made by management                    as well as evaluating                    the overall           consolidated              statement
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 2012          in


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




                                          Lz
December            26 2012


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   2012

In thousands except share and per-share                             infotmation




ASSETS


CASH                                                                                                                                18




SECURITIES           OWNED              At   fair   value    includes       securities    pledged    of   $3822695        8030149


OTC DERIVATIVES                  RECEIVABLE                                                                                 10102


RECEIVABLE             FROM       NON-AFFiLIATE               BROKER-DEALERS                        NET                     87255


OTHER ASSETS                                                                                                                35177


TOTAL                                                                                                                    $8162701



LIABILITIES          AND STOCKHOLDERS                          EQUITY


LIABILITIES
 Bank   loan                                                                                                             $2881967
 Securities      sold but not yet purchased                   at   fair   value                                            736201
 OTC    derivatives        payable                                                                                           4069
            to    affiliate    broker-dealer           net
 Payable                                                                                                                  1586812
 Accounts                     and accrued
                 payable                       liabilities                                                                  48506


        Total     liabilities                                                                                             5257555


LIABILITIES          SUBORD1NATED                   TO CLAIMS OF GENERAL                       CREDITORS                   850000


STOCKHOLDERS                   EQUITY
 Conmion stock $1000                 par value          150000       shares       authorized    issued and outstanding     150000
 Retained     earnings                                                                                                    1905146


        Total     stockholders        equity                                                                              2055146


TOTAL                                                                                                                    $8162701


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 2012
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          Authority              Inc     FTNRA            The

     Company         clears       the majority          of   its   securities 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        In    November of

     2011     the   Company            became          an exchange-traded fund market maker on the                                        NYSE         Arca 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 Company                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 in preparing               the

     consolidated          statement        of financial            condition        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   Receivable              from non-affiliate

     broker-dealersnet                   for clearings         with third parties and                in   Payable        to    affiliate        broker-dealernet                 for

     clearing       with   RBC         CM LLC

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




                                                                                        -3-


Recent        Accounting             Pronouncements


ASC 820 Fair Value Measurements and Disclosures In May 2011 the FASB issued ASU No 2011-
04 Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in US
GAAP and IFRSs The amendments to ASC 820 include guidance on the application of the highest and
best    use and         valuation       premise concepts               including        an exception          to the valuation          premise for certain
risks       managed       on        portfolio       basis      the valuation           of equity     instruments        and the use of premiums                     and

discounts         representing           adjustments           for the    size    of an entitys        holding of an asset or              liability      specifically

blockage         factors       are not    permitted            The amendments               also    include     expanded         disclosures          including

disclosures        around        fair    value      measurements           categorized         within     Level        of the      fair   value     hierarchy and

disclosures        when         the entitys         use of       nonfinancial           asset differs       from the highest            and    best   use of that

asset       The amendments               in    ASU No          2011-04         are to   be applied       prospectively            The guidance            will   be

effective        for the      Companys              year ending October                31 2013 The Company                  is    currently       assessing        the

impact of adopting               this    update         on the   Companys              consolidated      financial      statements


ASC 210           Balance        SheeL         In   November 2011                the   FASB     issued      amended        guidance        under      ASC        210     in

ASU No            2011-11        Disclosures            about     OffsettingAssets            and    Liabilities       ASU No             2011-11       amends          ASC
210     to require        an entity to disclose              information about              offsetting      and   related     arrangements to enable                     users

of    its   financial     statements           to   understand the effect              of those     arrangements on              its   financial    position

Entities        will    be required       to     disclose      gross     and    net information         about both instruments                  and transactions

eligible for offset in the                statement         of financial         position     and   instruments        and transactions             subject        to   an

agreement          similar to           master netting           arrangement            The    guidance        will   be applicable           for the     Company             in

the    fiscal    year beginning November                          2013 The Company                   does not believe            that     adoption of       this    ASU
will    have       significant          impact on         Companys             consolidated         financial     statements


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                                       incurred
                                                                       compensation           costs                    by the Company               were    paid to

RBC         CM LLC

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

borrowings             with    RBC      CM LLC            which     are   recorded on the consolidated                     statement       of financial condition
in   Payable       to   affiliate     broker-dealer              net     The average          monthly       balance     for these         payables        was

     November2011                                                                                                                                             83157
     December 2011                                                                                                                                          129681
     January2012                                                                                                                                           252445
     February 2012                                                                                                                                         238759
     March2012                                                                                                                                              183692
     April      2012                                                                                                                                       404445
     May2012                                                                                                                                                  19885
     June2012                                                                                                                                              413986
     July2012                                                                                                                                              549094
     August 2012                                                                                                                                          1120949
     September           2012                                                                                                                             1492009
     October       2012                                                                                                                                   2039557




                                                                                  -4-


SECURITIES              OWNED AND                   SECURITIES               SOLD BUT NOT YET PURCHASED

Securities        owned      and   securities                                                    at   October        31 2012        consisted                               of
                                                    sold but not yet purchased                                                                        principally

            securities       and                                                                      fair   value          follows
trading                            exchange-traded derivative                    contracts       at                    as



                                                                                                                                                       Sold But
                                                                                                                                                           Not Yet

                                                                                                                               Owned                  Purchased

   Exempted          securities

      U.S      government                                                                                                         57205                     60001
      U.S      government          agencies                                                                                  2627930
   Debt     securities

      Corporate bonds                                                                                                            104716                    130492
      Collateralized           mortgage       and   asset    backed                                                              150178
   Other securities

      Listed      equities                                                                                                   5075852                       517969
      Listed      interest rate      futures    options                                                                             5003                         1275
      Listed      equity     options                                                                                                9265                    26464

   Total                                                                                                                    $8030149                  $736201




The     Company        pledges       its   securities    owned         to coilateralize          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   affiliates    where       those   parties have           the right to      sell     or repledge          was $3057180              The         Clearing

Broker      further    pledged         $765515 of        the    Companys            securities as collateral                under    its   securities 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 2012            consisted      of premium and                fair


value     adjustments on swaps                and   forward          contracts     as follows



                                                                            Fair   Value     and Gross             Notional       Amounts
                                                      Receivable                     Notional                         Payable                       Notional



 Interest rate      swaps                                       4659                 1090000                                22242                    1225000
 Foreign exchange              contracts                        4293                 1065000                                 5644                    1123000
 Credit    default     swaps                                    2260                       50000                             1650                          85000
 Cash     Collateral Netting                                   1110                        n/a                         25467                               n/a




 Total                                                        10102                  2205000                                 4069                    2433000




                                                                             -5-


BANK LOANS

On     October        31 2012                the                       maintained              $15000000                 secured      line   of credit the Secured
                                                       Company
Credit                           with the          Bank Under               this                          this    loan    is   callable      at   the discretion            of the Bank
          Facility                                                                   agreement
and the Company                    does not pay interest                       The     outstanding          loan    at    October        31 2012 was $2881967
collateralized          with firm-owned                         securities       of    $3057180             The average              daily balance for this loan was



   November 2011                                                                                                                                                      $2007754
   December 2011                                                                                                                                                           2409433
   January 2012                                                                                                                                                            2440198
   February 2012                                                                                                                                                           2527341
   March 2012                                                                                                                                                              3148286
   April    2012                                                                                                                                                           3560423
   May      2012                                                                                                                                                           2697997
   June2012                                                                                                                                                                1716486
   July   2012                                                                                                                                                             1940866
   August        2012                                                                                                                                                      1817743
   September           2012                                                                                                                                                2694637
   October        2012                                                                                                                                                     3817762


TAXATION

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

Luxembourg             to corporate                    income      tax municipal              business           tax and       net    worth tax The Company                        has

accrued       provision                 to    cover       its    Luxembourg            tax    liability      for the current           year in the amount                   of   $2550


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         with        FASB ASC 740
Income      Taxes           are     necessary and                 determined that no                 such matters              exist as   of October           31 2012           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               $1.46 per month                In   addition there               is


  monthly        rent       allocation                 for the   New      York        office       space of approximately                    $5.93
                                                                                                                                                        per month


LIABILITIES                      SUBORDINATED TO CLAIMS OF GENERAL CREDITORS

The Company                 has          $100000             subordinated             loan    agreement            renewable           on February            13 2015 with an
affiliate    Royal           Bank            Holding        Inc          Canadian        holding           company             Under    this      agreement           the    Company
does not pay interest


The Company                 has          $750000             subordinated             loan    agreement            renewable           on February 13 2015                       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    155    basis


points    1.76%             at   October               31 2012


                                                                                             -6-


     All    liabilities      subordinated             to claims             of general       creditors           are    covered          by agreements                  approved            by the

     FINRA                                                                                                                                                                     Uniform            Net
                  and      are thus         available        for      computing           the    Companys               net capital            pursuant          to the

                 Rule To           the extent         that       such       liabilities     are required               for the      Companys                   continued compliance
     Capital

     with minimum              net capital           requirements                they     may not          be repaid



10   NET CAPITAL REQUIREMENTS

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

                 5c3-          which                         the      maintenance            of minimum                net capital              The Company                    has elected          to use
     Rule                                    requires
                                                                                                                                                               maintain the greater                     of
                                                                      by the rule which requires
     the alternative          method                                                                                    that    the      Company
                                                  permitted

     2% of      aggregate          debit      balances           or   minimum             net capital         as    defined          equal           to   $1000 At October                        31
     2012      the                       had       net capital         of     $2053109              which        was $2052109                        in excess         of the required
                      Company
     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       price      quotations               price      activity        for


     equivalent           securities         and valuation                pricing     models


     Similarly the            Companys               short-term              liabilities     pursuant to bank                   loans      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           generally         have         variable          interest rates        and      short-term           maturities                in   many         cases     overnight
     and    accordingly            are not materially                  affected       by changes            in interest rates



     The book         value        of $750000              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
     2012 The book                 value      of $100000               of    liabilities        subordinated            to     claims       of general            creditors           is   non-

     interest-bearing              and      the    fair    value       is   $99951 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 inability of counterparties                                           to    perform under the
     terms of the contracts                  credit risk The Company                                    attempts         to control            its
                                                                                                                                                      exposure          to     market risk

     through use of                proprietary             trading                    that      determines whether                       the    market risk inherent                       in the
                                                                            system
     Companys              portfolios         is   within        established          limits




                                                                                                -7-


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

                               contracted                                                       an obligation                  to                     the securities in the                  market      at
     securities          at                       prices thereby                 creating                                            purchase
                                                                                                     ultimate                                 to satisfy the sale            of securities sold
     prevailing           prices Consequently                         the   Companys                                   obligation

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

     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    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

                                                          exit price                                                                   between            market participants                at   the
     transfer            liability       i.e      the                              in    an orderly transaction

     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

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

     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    significant         to the        measurement                of   fair     value        Valuation             adjustments that may be
     made      to    ensure        that        financial       instruments              are reported             at    fair    value        include



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


           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 may be                   less     than    the estimated            fair    value       due    to

           low trading                 volumes


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

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

             and     are subject              to significant            management judgment



                                                                                                    -8-


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

categories      of assets and           liabilities      measured          at    fair    value on          recurring           basis follows



Securities      Owned and               Securities           Sold Not Yet Purchased


Exempted      Securities




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

    prices and          depending          on the level of market activity                          and transparency                   are categorized          within

    Level        or    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 and            prepayment
    rates     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                                where         observable           bond      spreads or credit default
                          quotations                                                                                                            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



    Listed      Equity     Securities                  Exchange-traded                 equity     securities are generally                      valued based on quoted

    prices      from the exchange                 To     the extent        these        securities are actively                  traded                 are categorized
                                                                                                                                                they
    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
                from the exchange                 and    are categorized                within     Level           of the               value
    prices                                                                                                                     fair               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 on           recurring       basis     as   of
October      31 2012       categorized             by the valuation              hierarchy          set out       in    ASC      820


                                                                                  -9-


                                                                                          Fair    Value    Measurements Using
                                                                                                                                  Assets
                                                                                                                                Liabilities     at

                                                                           Level                  Level            Level         Fair   Value


      Securities        owned
                             securities
        Exempted
         U.S                                                                 11534                 45671                             57205
                   government
         U.S       government             agencies                                           2627930                             2627930

        Debt      securities

                               bonds                                                              104716                            104716
          Corporate
          Collateralized                              and                                         150178                            150178
                                   mortgage
              asset    backed

        Other      securities

          Listed       equities                                           5075277                         575                    5075852

          Listed       interest      rate futures       options               5003                                                      5003
          Listed                   options                                         454               8811                               9265
                       equity                                                                                    _________

      Total      securities       owned                                   5092268                2937881                         8030149
                                                                                                                 __________


      OTC       derivatives        receivable

        Credit        default                                                                        2260                               2260
                                  swaps
        Interest        rate    swaps                                                                4659                               4659

        Foreign exchange                 contracts                                                   4293                               4293
        Cash      collateral       netting                               ________                   1110         ________               1J
                   Total       OTC      derivatives         receivable
                                                                         _________                  10102        _________              10102

      Total                                                              $5092268           $2947983                            $8040251

       Securities        sold     but    not   yet    purchased

        Exempted             securities

          U.S       government                                               27547                  32454                               60001
          U.S       government            agencies

        Debt      securities


          Corporate            bonds                                                               130492                           130492
          Collateralized            mortgage          and

               asset    backed

        Other       securities

          Listed        equities                                            517459                        510                       517969
          Listed        interest     rate futures       options               1275                                                       1275
          Listed        equity     options                                         338              26126                               26464
                                                                                                                 _________

                   Total       securities      sold    but    not


                       yet   purchased                                      546619                 189582                           736201
                                                                                                                 _________

       OTC       derivatives         payable
        Credit         default    swaps                                                              1650                                1650
        Interest        rate     swaps                                                              22242                               22242
        Foreign exchange                 contracts                                                   5644                                5644

        Cash       collateral       netting                                                        25467         _________           2547
                   Total       OTC      derivatives         payable                                  4069                                4069
                                                                                                                 _________

       Total                                                                546619                 193651                           740270



14   SUBSEQUENT                         EVENTS

     None




                                                                                   -10-


                                                                                                                                                                Deloitte         Touche          LLP

                                                                                                                                                                Two World Financial               Center


         elO                                                                                                                                                    New York NY 10281
                                                                                                                                                                USA

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




December         26 2012


RBC       Capital     Markets         Arbitrage          S.A
Three      World      Financial          Center

New York NY                 10281



In    planning       and    performing           our audit          of the consolidated               statement of financial                       condition          of   RBC        Capital

Markets        Arbitrage       S.A           Subsidiary the                Company                  as   of October            31 2012 on                which        we     issued         our

report
           dated     December 26 2012 and                           such   report        expressed an            unqualified           opinion        on     the      consolidated

statement       of financial          condition           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          statement of financial                   condition          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-5g1                  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       17a-3a1                 and       for   determining

compliance           with the exemptive                 provisions of Rule                 15c3-3         Because         the    Company              does not carry

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


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                                estimates
                                                                                                                                                    responsibility

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

                 of internal        control       and     the practices            and
objectives                                                                                 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 generally                    accepted              accounting       principles            Rule     17a-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                                                   above
                                                                                                                                 procedures referred                       to

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

                      of their design and
effectiveness                                            operation          may     deteriorate


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

                                                     in the       normal      course of performing                     their      assigned functions               to    prevent       or
management                or    employees
detect    and     correct            misstatements               on     timely basis                   significant         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                               described in the            first   and     second
                                                                                                            purpose

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 2012       to     meet    the    SECs
objectives


This report          is    intended          solely       for the      information and                 use of the Board of Directors                          management          the

SEC      Financial              Industry Regulatory                    Authority          Inc     and       other     regulatory           agencies      that   rely on        Rule    17a-

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



                                     7cJe             Up



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