## Major Risks and Methods of Management 

## <Market Risk Management> 

Market risk refers to the risk of incurring losses due to market fluc- tuations, which affect the value of stock prices, interest rates, for- eign exchange rates, and commodity prices. 

In terms of the Group’s trading positions, the Group sets limits on Value at Risk (VaR), which indicates maximum potential loss at a specific confidence level, position, and sensibility, with consider- ation given to the financial status of the Group and the business plans and budgets of the departments exposed to trading posi- tions. The Risk Management Department monitors market risk for the Group as a whole and reports daily on the status of market risk to management. In addition, considering the case of severe market fluctuation and potential VaR, which do not appear under the cal- culation based on statistical hypotheses drawn from set time peri- ods of empirical data, the Group carries out stress tests using scenarios based on actual empirical market data, as well as hypo- thetical stress event scenarios. 

## <Credit Risk Management> 

Credit risk refers to the risk of any losses caused when a client to which the Group extended credit suffers a deterioration in financial conditions, a valuation loss on assets (including off-balance-sheet assets), or for some other reason is unable to repay its debt. 

Before the Group can take on a transaction involving credit risk in its trading position, the Group assigns a line of credit to the counterparty mainly based on its credit rating. Subsequently, the Group carefully monitors estimations of the notional value of the relevant principal and adherence to the amount of credit used. 

In particular, in businesses such as the wholesale business, where the exposure to credit risk is comparatively high, the Group determines the credit standing of each counterparty by conducting quantitative and qualitative evaluations based on a credit evaluation model. The Group then assigns a line of credit to each counter- party, taking into account various transaction conditions such as the credit period and availability and appropriateness of collateral. 

In addition, the Group measures credit-VaR and also periodically monitors the effects of large exposure to a single counterparty. 

## <Management of Market Risk and Credit Risk Unrelated to Trading Positions> 

The Group also owns private equity and other investments related to principal investment businesses and venture capital, and loans and marketable securities related to the banking business, as well as investment securities unrelated to its trading positions that are held for a long-term perspective for the purpose of maintaining business relationships. Although such assets are also exposed to market and credit risks, the risk management of such assets is conducted in accordance with the risk characteristics unique to each line of business. 

## <Liquidity Risk Management> 

Liquidity risk refers to the risk of suffering losses due to cash man- agement difficulties or becoming subject to financing at markedly higher costs than usual as a result of an abrupt change in market conditions or a worsening of the Group’s finances. The Group, while employing a variety of financial assets and liabilities, conducts its business with a focus on securities-related operations as its core business. Accordingly, it procures funds based on the policy of efficiently and periodically ensuring ample liquidity necessary for the continuation of its business. 

In order to prevent fluctuations in the market from affecting the continuation of our business activities, the Group is constantly striving to secure the stability of fund procurement. Particularly in recent years, the Group has been accumulating liquidity through such means as fund procurement through the market as well as loans from financial institutions, in preparation for unforeseen events such as those caused by global financial crises or credit crunches. Additionally, as it can be anticipated that such crises may make it difficult to procure new funds and reacquire existing funds, the repayment periods of procured capital are staggered with funds procured from diverse sources. 

