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Businesses that consume a great deal of capital or place a heavy burden on liquidity will be more tightly controlled and financial com- panies will have to build the most appropriate portfolio of businesses based on the assumption that regulations will continue to tighten. 

Our new Medium-Term Management Plan responds to the current trend towards tighter financial regulation. The Daiwa Securities Group’s financial strategy under the new plan addresses issues such as how to secure appropriate levels of capital adequacy and liquidity. It pursues highly effective risk management. The general business strategy focuses on client asset-based businesses that manage the assets of customers, such as bank deposits and investment trusts, and on brokerage businesses that reflect the flow of orders from customers. In this way, the business plan emphasizes stable earnings and capital efficiency. 

## Maintaining Financial Health 

At the end of FY2011, the Daiwa Securities Group had a consoli- dated capital adequacy ratio of 27.4% (based on the Basel 2.5 standards)—a very high level relative to those of other major financial groups. In addition, the Group has already established a liquidity management structure to regulate the liquidity coverage ratio in accordance with the Basel Committee on Banking Supervision. Stress tests are conducted on a daily basis in order to confirm the condition of our liquidity portfolio. Furthermore, the results of these stress tests showed that the liquidity coverage ratio remained well above 100% in every stress test. This indicates that we would be able to maintain business continuity even if market conditions were 

to prevent the Group from obtaining unsecured loans for a period of one year. The Group can boast an extremely solid financial base, and the systems we have set up for controlling capital adequacy and liquidity should be able to fully comply with any further tighten- ing of financial regulations in the future. We will continue to refine these structures. 

Although the businesses that the Group conducts carry with them a multitude of inherent risks, constant monitoring of risk throughout the Group will allow us to maintain a healthy financial base and earnings structure. As noted above, global financial regu- lations are likely to place even greater importance on capital effi- ciency. The Daiwa Securities Group is responding to this trend by introducing risk management structures and procedures that can control market risk and credit risk at appropriate levels and minimize operational risk in the future. 

Nobuyuki Iwamoto Deputy President COO and CFO Daiwa Securities Group Inc. 

