Citibank 2009 Annual Report Download - page 271

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Citigroup’s securities operations abroad are conducted through various
subsidiaries and affiliates, principally Citigroup Global Markets Limited in
London and Citigroup Global Markets Japan Inc. in Tokyo. Its securities
activities in the United Kingdom, which include investment banking, trading,
and brokerage services, are subject to the Financial Services and Markets Act
of 2000, which regulates organizations that conduct investment businesses in
the United Kingdom including capital and liquidity requirements, and to the
rules of the Financial Services Authority. Citigroup Global Markets Japan Inc.
is a registered securities company in Japan, and as such its activities in Japan
are regulated principally by the Financial Services Agency of Japan. These
and other subsidiaries of Citigroup are also members of various securities
and commodities exchanges and are subject to the rules and regulations
of those exchanges. Citigroup’s other offices abroad are also subject to the
jurisdiction of foreign financial services regulatory authorities.
CGMI is a member of the Securities Investor Protection Corporation
(SIPC), which provides protection for customers of a broker-dealer against
losses in the event of the liquidation of a broker-dealer. SIPC protects
customers’ securities accounts held by a broker-dealer up to $500,000 for
each eligible customer, subject to a limitation of $100,000 for claims for cash
balances. To supplement this SIPC coverage, CGMI has purchased additional
protection for the benefit of its customers, subject to an aggregate loss limit of
$600 million and a per client cash loss limit of up to $1.9 million.
Capital Requirements
As a registered broker-dealer, CGMI is subject to Rule 15c3-1 of the SEC (the
Net Capital Rule). Under the Net Capital Rule, CGMI is required to maintain
minimum net capital based on the greater of the SEC or CFTC minimum net
capital requirement equal to 2% of aggregate debit items, as defined. Under
NYSE regulations, CGMI may be required to reduce its business if its net
capital is less than 4% of aggregate debit items and may also be prohibited
from expanding its business or paying cash dividends if resulting net capital
would be less than 5% of aggregate debit items. Furthermore, the Net Capital
Rule does not permit withdrawal of equity or subordinated capital if the
resulting net capital would be less than 5% of aggregate debit items.
CGMI was approved by the SEC to compute net capital in accordance with
the provisions of Appendix E of Rule 15c3-1. This methodology allows CGMI
to compute market risk capital charges using internal value-at-risk models.
Under Appendix E, CGMI is also required to hold tentative net capital in
excess of $1 billion and net capital in excess of $500 million. The firm is also
required to notify the SEC in the event that its tentative net capital is less than
$5 billion.
Compliance with the Net Capital Rule could limit those operations of
CGMI that require the intensive use of capital, such as underwriting and
trading activities and the financing of customer account balances, and also
limits the ability of broker-dealers to transfer large amounts of capital to
parent companies and other affiliates.
CUSTOMERS
In Citigroup’s judgment, no material part of Citigroup’s business depends
upon a single customer or group of customers, the loss of which would have
a materially adverse effect on Citi, and no one customer or group of affiliated
customers accounts for as much as 10% of Citigroup’s consolidated revenues.