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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2024-02-29 compared with 2023-03-01 · 28 added, 34 removed, 49 unchanged (56% of the section changed)

1 unchanged sentence

Credit risk arises from potential non-performance by counterparties and customers.

BGC Partners has established policies and procedures to manage its exposure to credit risk.

BGC Partners maintains a thorough credit approval process to limit exposure to counterparty risk and employs stringent monitoring to control the counterparty risk from its matched principal and agency businesses.

BGC Partners’ account opening and counterparty approval process includes verification of key customer identification, anti-money laundering verification checks and a credit review of financial and operating data.

BGC has established policies and procedures to manage its exposure to credit risk.

BGC maintains a thorough credit approval process to limit exposure to counterparty risk and employs stringent monitoring to control the counterparty risk from its matched principal and agency businesses.

BGC’s account opening and counterparty approval process includes verification of key customer identification, anti-money laundering verification checks and a credit review of financial and operating data.

The credit review process includes establishing an internal credit rating and any other information deemed necessary to make an informed credit decision, which may include correspondence, due diligence calls and a visit to the entity’s premises, as necessary.

1 unchanged sentence

Ongoing credit monitoring procedures include reviewing periodic financial statements and publicly available information on the client and collecting data from credit rating agencies, where available, to assess the ongoing financial condition of the client.

In addition, BGC Partners incurs limited credit risk related to certain brokerage activities.

In addition, BGC incurs limited credit risk related to certain brokerage activities.

The counterparty risk relates to the collectability of the outstanding brokerage fee receivables.

2 unchanged sentences

Principal Transaction Risk

Through its subsidiaries, BGC Partners executes matched principal transactions in which it acts as a “middleman” by serving as counterparty to both a buyer and a seller in matching back-to-back trades.

Through its subsidiaries, BGC executes matched principal transactions in which it acts as a “middleman” by serving as counterparty to both a buyer and a seller in matching back-to-back trades.

These transactions are then settled through a recognized settlement system or third-party clearing organization.

1 unchanged sentence

Cash settlement of the transaction occurs upon receipt or delivery of the underlying instrument that was traded.

BGC Partners generally avoids settlement of principal transactions on a free-of-payment basis or by physical delivery of the underlying instrument.

BGC generally avoids settlement of principal transactions on a free-of-payment basis or by physical delivery of the underlying instrument.

However, free-of-payment transactions may occur on a very limited basis.

The number of matched principal trades BGC Partners executes has continued to grow as compared to prior years.

The number of matched principal trades BGC executes has continued to grow as compared to prior years.

Receivables from broker-dealers, clearing organizations, customers and related broker-dealers and Payables to broker-dealers, clearing organizations, customers and related broker-dealers on the Company’s Consolidated Statements of Financial Condition primarily represent the simultaneous purchase and sale of the securities associated with those matched principal transactions that have not settled as of their stated settlement dates.

BGC Partners’ experience has been that substantially all of these transactions ultimately settle at the contracted amounts, however, the ability to settle has the potential to be impacted by unforeseen circumstances.

BGC’s experience has been that substantially all of these transactions ultimately settle at the contracted amounts, however, the ability to settle has the potential to be impacted by unforeseen circumstances.

Market risk refers to the risk that a change in the level of one or more market prices, rates, indices or other factors will result in losses for a specified position.

BGC Partners may allow certain of its desks to enter into unmatched principal transactions in the ordinary course of business and hold long and short inventory positions.

BGC may allow certain of its desks to enter into unmatched principal transactions in the ordinary course of business and hold long and short inventory positions.

These transactions are primarily for the purpose of facilitating clients’ execution needs, adding liquidity to a market or attracting additional order flow.

As a result, BGC Partners may have market risk exposure on these transactions.

BGC Partners’ exposure varies based on the size of its overall positions, the risk characteristics of the instruments held and the amount of time the positions are held before they are disposed of.

BGC Partners has limited ability to track its exposure to market risk and unmatched positions on an intra-day basis;

As a result, BGC may have market risk exposure on these transactions.

BGC’s exposure varies based on the size of its overall positions, the risk characteristics of the instruments held and the amount of time the positions are held before they are disposed of.

BGC has limited ability to track its exposure to market risk and unmatched positions on an intra-day basis;

however, it attempts to mitigate its market risk on these positions by strict risk limits, extremely limited holding periods and hedging its exposure.

These positions are intended to be held short term to facilitate customer transactions.

However, due to a number of factors, including the nature of the position and access to the market on which it trades, BGC Partners may not be able to unwind the position and it may be forced to hold the position for a longer period than anticipated.

However, due to a number of factors, including the nature of the position and access to the market on which it trades, BGC may not be able to unwind the position and it may be forced to hold the position for a longer period than anticipated.

All positions held longer than intra-day are marked to market.

We also have investments in equity securities, which are publicly-traded, and which had a fair value of $0.3 million as of December 31, 2022.

We also had Financial instruments owned, at fair value, of $45.8 million as of December 31, 2023.

These include investments in equity securities, which are publicly-traded.

Investments in equity securities carry a degree of risk, as there can be no assurance that the equity securities will not lose value and, in general, securities markets can be volatile and unpredictable.

2 unchanged sentences

However, there can be no assurance that our hedging activities will be adequate to protect us against price risks associated with our investments in equity securities.

See Note 11—“Derivatives” and Note 12—“Fair Value of Financial Assets and Liabilities” to our

Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for further information regarding these investments and related hedging activities.

See Note 11—“Derivatives” and Note 12—“Fair Value of

Financial Assets and Liabilities” to our Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10‑K for further information regarding these investments and related hedging activities.

Our risk management procedures and strict limits are designed to monitor and limit the risk of unintended loss and have been effective in the past.

1 unchanged sentence

Adverse movements in the securities positions or a downturn or disruption in the markets for these positions could result in a substantial loss.

In addition, principal gains and losses resulting from these positions could on occasion have a disproportionate effect, positive or negative, on BGC Partners’ Consolidated Financial Condition and results of operations for any particular reporting period.

In addition, principal gains and losses resulting from these positions could on occasion have a disproportionate effect, positive or negative, on BGC’s consolidated financial condition and results of operations for any particular reporting period.

Operational Risk

11 unchanged sentences

Foreign Currency Risk

BGC Partners is exposed to risks associated with changes in FX rates.

BGC is exposed to risks associated with changes in FX rates.

Changes in FX rates create volatility in the U.S.

dollar equivalent of the Company’s revenues and expenses.

In addition, changes in the remeasurement of BGC Partners’ foreign currency denominated financial assets and liabilities are recorded as part of its results of operations and fluctuate with changes in foreign currency rates.

In addition, changes in the remeasurement of BGC’s foreign currency denominated financial assets and liabilities are recorded as part of its results of operations and fluctuate with changes in foreign currency rates.

BGC monitors the net exposure in foreign currencies on a daily basis and hedges its exposure as deemed appropriate with highly rated major financial institutions.

3 unchanged sentences

dollar, holding all other assumptions constant.

The analysis identified the stress-tested scenario as the U.S.

dollar weakening against both the euro and against the pound sterling.

The analysis used the stress-tested scenario as the U.S.

dollar strengthening against both the euro and against the pound sterling.

If as of December 31, 2023, the U.S.

dollar had weakened against both the euro and the pound sterling by 10%, the currency movements would have had an aggregate negative impact on our net income of approximately $5.2 million.

dollar had strengthened against both the euro and the pound sterling by 10%, the currency movements would have had an aggregate negative impact on our net income of approximately $10.9 million.

Interest Rate Risk

BGC Partners had $1,049.2 million in fixed-rate debt outstanding as of December 31, 2022.

BGC had $1,183.5 million in fixed-rate debt outstanding as of December 31, 2023.

These debt obligations are not currently subject to fluctuations in interest rates, although in the event of refinancing or issuance of new debt, such debt could be subject to changes in interest rates.

In addition, as of December 31, 2022, BGC Partners had no borrowings outstanding under its Revolving Credit Agreement.

The Revolving Credit Agreement interest rate on borrowings was previously based on LIBOR or a defined base rate plus additional margin.

On March 10, 2022, the Revolving Credit Agreement was amended, restated and increased, and the corresponding interest rate on any borrowings under its Revolving Credit Agreement is based on SOFR or a defined base rate plus additional margin.

Disaster Recovery

Our processes address disaster recovery concerns.

We operate most of our technology from U.S.

primary data centers.

Either site alone is typically capable of running all of our essential systems.

Replicated instances of this technology are maintained in our redundant data centers.

Our data centers are generally built and equipped to best-practice standards of physical security with appropriate environmental monitoring and safeguards.

BGC Technology conducts annual disaster recovery training exercises for each primary data center where failover procedures are tested against defined Recovery Time Objectives (RTOs).

In addition, as of December 31, 2023, BGC had $240.0 million borrowings outstanding under its Revolving Credit Agreement.

The Revolving Credit Agreement interest rate on borrowings is based on SOFR or a defined base rate plus additional margin.

To assess exposure to interest rate risk, we evaluated the effect of a 1% shift in interest rates, holding all other assumptions constant.

The analysis indicated that our consolidated net earnings in fiscal year 2023 would have declined by $2.4 million if interest rates increased by an additional 1%.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk