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## Message From the COO/CFO 

Since the global financial crisis that followed the Lehman Shock in 2008, governments throughout the world have been introducing tighter regulations aimed at fostering changes in the business models of financial institutions and ensuring their financial stability. The Daiwa Securities Group has always maintained a comparatively healthy financial position, but in the future we plan to go a step further. We intend to take even more proactive steps to procure and manage capi- tal and maintain appropriate levels of liquidity, maintain an appropriate balance of assets and liabilities, and seek to enhance sustainable improvement of company value from the standpoint of financial health. 

## Dramatic Changes in Global Financial Regulation 

Governments are making major revisions to their financial industry regulatory structures, due to the financial crisis starting from the Lehman Shock in 2008, to the European debt crisis in 2012. 

With the introduction of new rules on consolidated regulation and supervision, the Daiwa Securities Group is now required—as of FY2011—to meet the same capital adequacy ratios as banks (the “Basel 2” regulations). The “Basel 2.5” accords introduced at the end of December 2011 place some tighter controls on market risk, but the next major change in capital adequacy rules will be the “Basel 3” accords, a comprehensive package of revisions that will be introduced in stages from March 2013. The Basel 3 regulations will require financial companies to maintain “going concern capital”— an amount of high-quality assets (common stocks and retained earnings) sufficient to cover any losses that might conceivably be generated in the course of ongoing operations. These rules will prevent companies from over-leveraging, and ensure that they maintain enough liquidity to ride out any major environmental 

stress. In other words, the regulations on financial companies are now being extended to include not only capital adequacy, but also liquidity and leverage. 

In addition to the Basel Accords, the G20 is taking steps to introduce new controls on derivative trading that will help limit set- tlement risk and counterparty risk. They have agreed to revise laws governing the over-the-counter derivatives market by the end of 2012. The US government is also considering whether to introduce the so-called “Volcker Rule,” which would prohibit depositary finan- cial institutions from trading on their own accounts as well as from owning or sponsoring investment funds. 

## Emphasizing Capital Efficiency 

The new financial regulatory environment that the Daiwa Securities Group faces reflects a hasty reaction to the prolonged turmoil in financial markets. The Basel 3 accords are an attempt to dictate more conservative norms among financial companies regarding the appropriate levels of capital adequacy and liquidity and it will be necessary to make various changes to meet the new standards. 

## Short-term Unsecured Capital Procurement and Liquidity Portfolio of the Daiwa Securities Group as of March 2012 

<img src='content_image/294597.jpg'>

