Quantitative and Qualitative Disclosures About Market Risk
+Added: Liquidity Risk
+Added: Liquidity risk refers to the potential inability to meet, in a timely and cost-effective manner, contractual and contingent financial obligations either on or off-balance sheet, as they come due.
+Added: Our primary liquidity needs are driven by transaction settlement, custody requirements, interest on corporate debt, strategic acquisitions, and capital returned to shareholders, among other liquidity needs.
+Added: We meet our liquidity needs primarily from working capital and cash generated by client activity as well as external financing.
+Added: A reduction in our liquidity position could reduce client confidence in us, which could result in the loss of client assets and accounts.
+Added: In addition, if our broker-dealer subsidiaries fail to meet regulatory capital guidelines or are unable to obtain regulatory approval, when required, to declare a dividend, regulators could limit the subsidiaries’ ability to pay dividends or limit their operations, which could reduce our liquidity and adversely affect our ability to repay debt, pay dividends on our common stock, or repurchase shares.
+Added: In addition, we may need to provide additional funding to such subsidiaries.
+Added: Potential conditions that could negatively impact our liquidity position include but are not limited to illiquid or volatile markets, diminished access to debt or capital markets, unforeseen cash or capital requirements, regulatory penalties or fines, settlements, customer restitution or other remediation costs, or adverse legal settlements or judgments.
+Added: Each liquidity risk is assessed individually, considering its potential impact on the business, stakeholders, and reputation to establish appropriate risk mitigation measures.
+Added: We have monitoring programs and controls to monitor, review, challenge, and discuss key liquidity issues that may have impact on the Company.
+Added: Credit risk is the risk of loss due to adverse changes in a borrower’s, issuer’s or counterparty’s ability to meet its financial obligations under contractual or agreed upon terms.
+Added: We are subject to credit risk from certain loans extended to advisors and institutions when we extend loans with repayment terms to facilitate advisors’ and institutions’ transition to our platform or to fund business development activities.
+Added: We are also subject to credit risk
+Added: when a forgivable loan to an advisor or institution converts to repayable upon advisor or institution termination or change in agreed upon terms.
+Added: Credit risk also arises when collateral posted with LPL Financial by clients to support margin lending or derivative trading is insufficient to meet clients’ contractual obligations to LPL Financial.
+Added: Our credit exposure in these transactions consists primarily of margin accounts, through which we extend credit to advisors’ clients collateralized by securities in the clients’ accounts.
+Added: Under many of these agreements, we are permitted to sell, repledge or loan these securities held as collateral and use these securities to enter into securities lending arrangements or to deliver to counterparties to cover short positions.
+Added: As our advisors execute margin transactions on behalf of their clients, we may incur losses if clients do not fulfill their obligations, the collateral in the clients’ accounts is insufficient to fully cover losses from such investments and our advisors fail to reimburse us for such losses.
+Added: Our losses on margin accounts were not material during the years ended December 31, 2024 and 2023.
+Added: We monitor exposure to industry sectors and individual securities and perform analyses on a regular basis in connection with our margin lending activities.
+Added: We adjust our margin requirements if we believe our risk exposure is not appropriate based on market conditions.
+Added: We are subject to concentration risk if we extend large loans to or have large commitments with a single counterparty, borrower or group of similar counterparties or borrowers, or if we accept a concentrated position as collateral for a margin loan.
+Added: Receivables from and payables to clients and stock borrowing and lending activities are conducted with a large number of clients and counterparties and potential concentration is monitored.
+Added: We seek to limit this risk through review of the underlying business and the use of our risk appetite limits established by senior management taking into consideration factors including current market conditions, the financial strength of the counterparty, the size of the position or commitment, the expected duration of the position or commitment and other positions or commitments outstanding.
We maintain trading securities and securities sold, but not yet purchased in order to facilitate client transactions, to meet a portion of our clearing deposit requirements at various clearing organizations, to track the performance of our research models and in connection with our dividend reinvestment program.
14 unchanged sentences
As of December 31, 2024, the fair value of our trading securities was $42.3 million, and securities sold, but not yet purchased were not material.
−Removed: The fair value of market risk sensitive instruments entered into for other than trading purposes included within other assets was $858.6 million as of December 31, 2023.
−Removed: See Note 5 - Fair Value Measurements within the notes to the consolidated financial statements for information regarding the fair value of trading securities, securities sold, but not yet purchased and other assets associated with our client facilitation activities.
+Added: The fair value of market risk sensitive instruments entered into for other than trading purposes included within other assets was $1.1 billion as of December 31, 2024.
+Added: See Note 5 - Fair Value
+Added: Measurements within the notes to the consolidated financial statements for information regarding the fair value of trading securities, securities sold, but not yet purchased and other assets associated with our client facilitation activities.
Interest Rate Risk
1 unchanged sentence
As of December 31, 2024, $2.1 billion of our outstanding debt was subject to floating interest rate risk.
−Removed: While our senior secured term loan is subject to increases in interest rates, we do not believe that a short-term change in interest rates would have a material impact on our net income given revenue generated by our client cash balances, which is generally subject to the same, but off-setting, interest rate risk.
+Added: While our term loan is subject to increases in interest rates, we do not believe that a short-term change in interest rates would have a material impact on our net income given revenue generated by our client cash balances, which is generally subject to the same, but off-setting, interest rate risk.
The following table summarizes the impact of increasing interest rates on our interest expense from the variable portion of our debt outstanding, calculated using the projected average outstanding balance over the subsequent twelve-month period (in thousands):
4 unchanged sentences
Corporate Debt and Other Borrowings Points Points Points Points
−Removed: Term Loan B $ 1,027,200 $ 1,023 $ 2,558 $ 5,116 $ 10,232
−Removed: Revolving Credit Facility
$ 1,020,000 $ 1,020 $ 2,550 $ 5,100 $ 10,200
+Added: Revolving Credit Facility 1,047,000 1,047 2,618 5,235 10,470
Variable-Rate Debt Outstanding
1 unchanged sentence
____________________
−Removed: (†) Our interest rate for our Term Loan B is locked in for one, two, three, six or twelve months as allowed under the Credit Agreement.
+Added: (†) Our interest rate for our Term Loan A is locked in for one, two, three, six or twelve months as allowed under the Credit Agreement.
At the end of the selected periods the rates will be locked in at the then-current rate.
2 unchanged sentences
We offer our advisors and their clients two FDIC insured bank sweep vehicles and a CCA that are interest rate sensitive.
−Removed: Our FDIC insured sweep vehicles include an (1) ICA for individuals, trusts, sole proprietorships and entities organized or operated to make a profit, such as corporations, partnerships, associations, business trusts and other organizations and (2) an insured deposit cash account (“DCA”) for advisory individual retirement accounts.
+Added: Our FDIC insured sweep vehicles include an (1) insured cash account (“ICA”) for individuals, trusts, sole proprietorships and entities organized or operated to make a profit, such as corporations, partnerships, associations, business trusts and other organizations and (2) an insured deposit cash account (“DCA”) for advisory individual retirement accounts.
Clients earn interest on deposits in the ICA and the DCA while we earn a fee.
9 unchanged sentences
By meeting promptly around the time of Federal Open Market Committee meetings, or for other market or non-market reasons, the RSC considers financial risk of the deposit sweep vehicles relative to other products into which clients may move cash balances.
−Removed: Credit risk is the risk of loss due to adverse changes in a borrower’s, issuer’s or counterparty’s ability to meet its financial obligations under contractual or agreed upon terms.
−Removed: We are subject to credit risk from certain loans extended to advisors and enterprises when we extend loans with repayment terms to facilitate advisors’ and enterprises’ transition to our platform or to fund business development activities.
−Removed: We are also subject to credit risk when a forgivable loan to an advisor or enterprise converts to repayable upon advisor or enterprise termination or change in agreed upon terms.
−Removed: Credit risk also arises when collateral posted with LPL Financial by clients to support margin lending or derivative trading is insufficient to meet clients’ contractual obligations to LPL Financial.
−Removed: Our credit exposure in these transactions consists primarily of margin accounts, through which we extend credit to advisors’ clients collateralized by securities in the clients’ accounts.
−Removed: Under many of these agreements, we are permitted to sell, repledge or loan these securities held as collateral and use these securities to enter into securities lending arrangements or to deliver to counterparties to cover short positions.
−Removed: As our advisors execute margin transactions on behalf of their clients, we may incur losses if clients do not fulfill their obligations, the collateral in the clients’ accounts is insufficient to fully cover losses from such investments and our advisors fail to reimburse us for such losses.
−Removed: Our losses on margin accounts were not material during the years ended December 31, 2023 and 2022.
−Removed: We monitor exposure to industry sectors and individual securities and perform analyses on a regular basis in connection with our margin lending activities.
−Removed: We adjust our margin requirements if we believe our risk exposure is not appropriate based on market conditions.
−Removed: We are subject to concentration risk if we extend large loans to or have large commitments with a single counterparty, borrower or group of similar counterparties or borrowers, or if we accept a concentrated position as collateral for a margin loan.
−Removed: Receivables from and payables to clients and stock borrowing and lending activities are conducted with a large number of clients and counterparties and potential concentration is monitored.
−Removed: We seek to limit this risk through review of the underlying business and the use of limits established by senior management taking into consideration factors including current market conditions, the financial strength of the counterparty, the size of the position or commitment, the expected duration of the position or commitment and other positions or commitments outstanding.
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.