Edgar Filing: NOMURA HOLDINGS INC

Form 6-K

FORM 6-K

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16 of

the Securities Exchange Act of 1934

Commission File Number: 1-15270

For the month of February 2014

NOMURA HOLDINGS, INC.

(Translation of registrant’s name into English)

9-1, Nihonbashi 1-chome

Chuo-ku, Tokyo 103-8645

Japan

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F X Form 40-F

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

Information furnished on this form:

EXHIBITS


Exhibit Number

1.		(English Translation) Quarterly Securities Report Pursuant to the Financial Instruments and Exchange Act for the Nine Months Ended December 31, 2013

2.		(English Translation) Confirmation Letter

3.		Ratio of Earnings to Fixed Charges and Computation Thereof for the Nine Months Ended December 31, 2013

The registrant hereby incorporates Exhibits 1, 2 and 3 to this report on Form 6-K by reference (i) in the prospectus that is part of the Registration Statement on Form F-3 (Registration No. 333-191250) of the registrant and Nomura America Finance, LLC, filed with the Securities and Exchange Commission (“SEC”) on September 19, 2013 and (ii) in the prospectus that is part of the Registration Statement on Form F-3 (Registration No. 333-186755) of the registrant, filed with the SEC on February 20, 2013.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	NOMURA HOLDINGS, INC.

Date: February 28, 2014	By:	/s/ Eiji Miura
		Eiji Miura
		Senior Managing Director

Exhibit 1

Quarterly Securities Report Pursuant to the Financial Instruments and Exchange Act for the Nine Months Ended December 31, 2013

Items included in the Quarterly Securities Report


	Page
Part I Corporate Information		1

Item 1. Information on Company and Its Subsidiaries and Affiliates		1

1. Selected Financial Data		1
2. Business Overview		1

Item 2. Operating and Financial Review		2

1. Risk Factors		2
2. Significant Contracts		2
3. Operating, Financial and Cash Flows Analysis		2

Item 3. Company Information		15

1. Share Capital Information		15
2. Directors and Executive Officers

Item 4. Financial Information		19

Preparation Method of Consolidated Financial Statements and Quarterly Review Certificate		19

1. Consolidated Financial Statements		20

(1) Consolidated Balance Sheets (UNAUDITED)		20
(2) Consolidated Statements of Income (UNAUDITED)		23
(3) Consolidated Statements of Comprehensive Income (UNAUDITED)		25
(4) Consolidated Statements of Changes in Equity (UNAUDITED)		26
(5) Consolidated Statements of Cash Flows (UNAUDITED)		27
Notes to the Consolidated Financial Statements (UNAUDITED)		28

2. Other		104

Part II Information on Guarantor of the Company

Quarterly Review Report of Independent Auditors

Note: Translations for the underlined items are attached to this form as below.

Part I Corporate Information

Item 1. Information on Company and Its Subsidiaries and Affiliates

1. Selected Financial Data


		Nine months ended December 31, 2012			Nine months ended December 31, 2013			Three months ended December 31, 2012		Three months ended December 31, 2013		Year ended March 31, 2013
Total Revenue	(Mil yen)		1,359,800			1,381,071			458,981		447,421		2,079,943
Net revenue	(Mil yen)		1,160,019			1,167,133			389,086		379,421		1,813,631
Income (loss) before income taxes	(Mil yen)		68,048			273,047			12,965		86,894		237,730
Net income (loss) attributable to Nomura Holdings, Inc. (“NHI”) shareholders	(Mil yen)		24,812			152,336			20,112		48,329		107,234
Comprehensive income (loss) attributable to NHI shareholders	(Mil yen)		52,030			241,092			66,043		108,269		194,988
Total equity	(Mil yen)		2,435,083			2,528,470			—		—		2,318,983
Total assets	(Mil yen)		38,562,229			43,634,422			—		—		37,942,439
Net income (loss) attributable to NHI shareholders per share—basic	(Yen)		6.73			41.09			5.44		13.02		29.04
Net income (loss) attributable to NHI shareholders per share—diluted	(Yen)		6.60			39.83			5.33		12.65		28.37
Total NHI shareholders’ equity as a percentage of total assets	(%)		5.6			5.7			—		—		6.0
Cash flows from operating activities	(Mil yen)		346,356			554,851			—		—		549,501
Cash flows from investing activities	(Mil yen)		(125,079	)		(130,173	)		—		—		(160,486	)
Cash flows from financing activities	(Mil yen)		(490,423	)		(20,956	)		—		—		(701,623	)
Cash and cash equivalents at end of the period	(Mil yen)		820,045			1,257,512			—		—		805,087

The selected financial data of Nomura Holdings, Inc. (the “Company”) and other entities in which it has a controlling financial interest (collectively referred to as “Nomura”, “we”, “our”, or “us”) are stated in accordance with the accounting principles generally accepted in the United States of America (“U.S. GAAP”).

2	Taxable transactions do not include consumption taxes and local consumption taxes.

3	As the consolidated financial statements have been prepared, selected financial data on the Company are not disclosed.

2. Business Overview

There was no significant change for the business of the Company and its 803 consolidated subsidiaries for the nine months ended December 31, 2013.

There were 17 affiliated companies which were accounted for by the equity method as of December 31, 2013.

Item 2. Operating and Financial Review

1. Risk Factors

There is no significant change in our Risk Factors for the nine months ended December 31, 2013 and until the submission date of this report.

2. Significant Contracts

Not applicable.

3. Operating, Financial and Cash Flows Analysis

(1) Operating Results

Nomura reported net revenue of ¥1,167.1 billion, non-interest expenses of ¥894.1 billion, income before income taxes of ¥273.0 billion, and net income attributable to NHI shareholders of ¥152.3 billion for the nine months ended December 31, 2013.

The breakdown of net revenue and non-interest expenses on the consolidated statements of income are as follows:


	Millions of yen
	Nine months ended December 31
	2012		2013
Commissions	¥	233,327	¥	384,681
Brokerage commissions		113,980		222,212
Commissions for distribution of investment trust		95,700		138,561
Other		23,647		23,908
Fees from investment banking		40,541		64,147
Underwriting and distribution		21,445		46,017
M&A / financial advisory fees		17,470		17,315
Other		1,626		815
Asset management and portfolio service fees		102,241		125,157
Asset management fees		89,510		111,604
Other		12,731		13,553
Net gain on trading		261,516		347,134
Gain (loss) on private equity investments		6,543		11,738
Net interest		96,267		102,080
Gain (loss) on investments in equity securities		14,767		20,394
Other		404,817		111,802

Net revenue	¥	1,160,019	¥	1,167,133


	Millions of yen
	Nine months ended December 31
	2012		2013
Compensation and benefits	¥	392,967	¥	437,418
Commissions and floor brokerage		66,800		83,154
Information processing and communications		130,341		142,228
Occupancy and related depreciation		68,429		59,613
Business development expenses		34,553		28,361
Other		398,881		143,312

Non-interest expenses	¥	1,091,971	¥	894,086

Business Segment Information

Results by business segment are noted below.

Reconciliations of Net revenue and Income(loss) before income taxes on segment results of operations and the consolidated statements of income are set forth in Item 4. Financial Information, 1. Consolidated Financial Statements, Note 17. “Segment and geographic information.”

The majority of gains and losses arising from election of the fair value option for the investment in Ashikaga Holdings Co., Ltd. (“Ashikaga Holdings”) has historically been reported within the Wholesale business segment. However as a result of the listing of Ashikaga Holdings in the First Section of Tokyo Stock Exchange on December 19, 2013, such gains and losses are now reported within the Other segment.

Net revenue


	Millions of yen
	Nine months ended December 31
	2012			2013
Retail	¥	259,176		¥	414,047
Asset Management		50,643			60,015
Wholesale		447,945			566,624
Other (Incl. elimination)		387,323			108,047

Total	¥	1,145,087		¥	1,148,733


Non-interest expenses
	Millions of yen
	Nine months ended December 31
	2012			2013
Retail	¥	215,766		¥	245,313
Asset Management		33,395			38,226
Wholesale		411,946			488,301
Other (Incl. elimination)		430,864			122,246

Total	¥	1,091,971		¥	894,086


Income (loss) before income taxes
	Millions of yen
	Nine months ended December 31
	2012			2013
Retail	¥	43,410		¥	168,734
Asset Management		17,248			21,789
Wholesale		35,999			78,323
Other (Incl. elimination)		(43,541	)		(14,199	)

Total	¥	53,116		¥	254,647

Retail

Net revenue was ¥414.0 billion, primarily due to increased sales performance of equities and investment trusts as a result of active equity markets. Non-interest expenses were ¥245.3 billion and income before income taxes was ¥168.7 billion. Retail client assets were ¥96.0 trillion as of December 31, 2013, a ¥12.2 trillion increase from March 31, 2013.

Asset Management

Net revenue was ¥60.0 billion. Non-interest expenses were ¥38.2 billion and income before income taxes was ¥21.8 billion. Assets under management were ¥32.9 trillion as of December 31, 2013, a ¥5.0 trillion increase from March 31, 2013, primarily due to inflows into our investment trust business and investment advisory business, and stronger market conditions.

Wholesale

Net revenue was ¥566.6 billion. Non-interest expenses were ¥488.3 billion and income before income taxes was ¥78.3 billion.

The breakdown of net revenue for Wholesale is as follows:


	Millions of yen
	Nine months ended December 31
	2012		2013
Fixed Income⁽¹⁾	¥	274,478	¥	290,501
Equities⁽¹⁾		112,840		192,417
Investment Banking (Net)		48,643		67,912
Investment Banking (Other)		11,984		15,794

Investment Banking		60,627		83,706

Net revenue	¥	447,945	¥	566,624

Investment Banking (Gross)	¥	98,927	¥	128,891

(1)	In accordance with the realignment in April 2013, certain prior period amounts of Fixed Income and Equities have been reclassified to conform to the current presentation.

For Fixed Income, primarily due to the significant achievements in Japan and Asia despite volatile markets, net revenue was ¥290.5 billion. For Equities, net revenue was ¥192.4 billion, primarily due to the solid performances in Japan driven by the strong market environment. For Investment Banking, net revenue was ¥83.7 billion, primarily due to an increase in the number of capital markets transactions and mark to market gain from the listing of Ashikaga Holdings.

Other Operating Results

Other operating results include net gain (loss) related to economic hedging transactions, realized gain (loss) on investments in equity securities held for operating purposes, equity in earnings of affiliates, corporate items, and other financial adjustments. Other operating results for the nine months ended December 31, 2013 include losses from changes in the fair value of the financial liabilities, for which the fair value option was elected, attributable to the change in Nomura’s creditworthiness of ¥2.6 billion; the negative impact of its own creditworthiness on derivative liabilities, which resulted in losses of ¥10.8 billion; and gains from changes in counterparty credit spread of ¥2.3 billion. Net revenue was ¥108.0 billion, non-interest expenses were ¥122.2 billion and loss before income taxes was ¥14.2 billion for the nine months ended December 31, 2013.

Geographic Information

Please refer to Item 4. Financial Information, 1. Consolidated Financial Statements, Note 17. “Segment and geographic information” for net revenue and income (loss) before income taxes by geographic allocation.

Cash Flow Information

Please refer to “(6) Liquidity and Capital Resources.”

(2) Assets and Liabilities Associated with Investment and Financial Services Business

1) Exposure to Certain Financial Instruments and Counterparties

Challenging market conditions continue to impact numerous products including securitization products and leveraged finance to which we have certain exposures. We also have exposures to Special Purpose Entities (“SPEs”) and others in the normal course of business.

Securitization Products

Our exposure to securitization products consists of commercial mortgage-backed securities (“CMBS”), residential mortgage-backed securities (“RMBS”), commercial real estate-backed securities and other securitization products. We hold these securitization products in connection with securitization, financing, trading and other activities. The following table provides a summary of our exposure to securitization products by geographic region of the underlying collateral as of December 31, 2013.


	Millions of yen
	December 31, 2013
	Japan		Europe		Americas		Asia and Oceania		Total⁽¹⁾
CMBS⁽²⁾	¥	4,109	¥	16,771	¥	82,678	¥	—	¥	103,558
RMBS⁽²⁾⁽³⁾		4,014		45,710		370,602		1,320		421,646
Commercial real estate-backed securities		—		—		—		—		—
Other securitization products⁽⁴⁾		228,648		14,416		158,496		1,552		403,112

Total	¥	236,771	¥	76,897	¥	611,776	¥	2,872	¥	928,316

(1)

The balances shown exclude certain CMBS of ¥21,259 million for which we transferred financial assets to securitization vehicles where such transfers were accounted for as secured financings rather than sales under Accounting Standards Codification^™ (“ASC”) 860 “Transfers and Servicing” (“ASC 860”), and in which we have no continuing economic exposure because the beneficial interests in the vehicles have been sold to third parties.

(2)	We have ¥11,454 million exposure, as whole loans and commitments, to U.S. CMBS and RMBS-related business as of December 31, 2013.

(3)	The RMBS balance for Americas excludes mortgage pass-through securities and U.S. government guaranteed collateralized mortgage obligations (“CMO”) of ¥1,891,809 million, because their credit risks are considered minimal.

(4)	Includes collateralized loan obligations (“CLO”), collateralized debt obligations (“CDO”) and asset-backed securities (“ABS”) such as those secured on credit card loans, auto loans, student loans and home equity loans.

The following table provides our exposure to CMBS by geographic region and the external credit ratings of the underlying collateral as of December 31, 2013. Ratings are based on the lowest ratings given by Standard & Poor’s Financial Services LLC, Moody’s Investors Service, Inc., Fitch Ratings Ltd., Japan Credit Rating Agency, Ltd. or Rating and Investment Information, Inc. as of December 31, 2013.


	Millions of yen
	December 31, 2013
	AAA		AA		A		BBB		BB		B		Others		Total
Japan	¥	—	¥	—	¥	729	¥	—	¥	205	¥	3,175	¥	—	¥	4,109
Europe		2,722		393		1,203		1,746		2,760		3,484		4,463		16,771
Americas		24,649		1,347		3,948		14,359		11,745		15,231		11,399		82,678

Total	¥	27,371	¥	1,740	¥	5,880	¥	16,105	¥	14,710	¥	21,890	¥	15,862	¥	103,558

Leveraged Finance

We provide loans to clients in connection with leveraged buy-outs and leveraged buy-ins. As this type of financing is usually initially provided through a commitment, we have both funded and unfunded exposures to these transactions.

The following table sets forth our exposure to leveraged finance by geographic region of the target company as of December 31, 2013.


	Millions of yen
	December 31, 2013
	Funded		Unfunded		Total
Europe	¥	32,525	¥	29,546	¥	62,071
Americas		9,298		82,191		91,489

Total	¥	41,823	¥	111,737	¥	153,560

Special Purpose Entities

Our involvement with these entities includes structuring, underwriting, as well as, subject to prevailing market conditions, distributing and selling debt instruments and beneficial interests issued by these entities. In the normal course of securitization and equity derivative activities business, we also act as a transferor of financial assets to, and underwriter, distributor and seller of repackaged financial instruments issued by these entities. We retain, purchase and sell variable interests in SPEs in connection with our market-making, investing and structuring activities. Our other types of involvement with SPEs include guarantee agreements and derivative contracts.

For further discussion on Nomura’s involvement with variable interest entities (“VIEs”), see Item 4. Financial Information, 1. Consolidated Financial Statements, Note 6. “Securitizations and Variable Interest Entities.”

2) Fair Value of Financial Instruments

A significant amount of our financial instruments are carried at fair value, with changes in fair value recognized either through earnings or other comprehensive income (loss) on a recurring basis. Use of fair value is either specifically required under U.S. GAAP or we make an election to use fair value for certain eligible items under the fair value option.

Other financial assets and financial liabilities are carried at fair value on a nonrecurring basis, where the primary measurement basis is not fair value. Fair value is only used in specific circumstances after initial recognition, such as to measure impairment.

In accordance with ASC 820 “Fair Value Measurements and Disclosures”, all financial instruments measured at fair value have been categorized into a three-level hierarchy based on the transparency of inputs used to establish fair value.

Level 3 financial assets excluding derivatives as a proportion of total financial assets excluding derivatives, carried at fair value on a recurring basis was 2% as of December 31, 2013 as listed below:


	Billions of yen
	December 31, 2013
	Level 1		Level 2		Level 3		Counterparty and Cash Collateral Netting			Total		The proportion of Level 3
Financial assets measured at fair value (Excluding derivative assets)	¥	11,213	¥	8,547	¥	383	¥	—		¥	20,143		2	%
Derivative assets		948		27,123		300		(25,731	)		2,640
Derivative liabilities		1,030		26,995		293		(26,081	)		2,237

Please refer to Item 4. Financial Information, 1. Consolidated Financial Statements, Note 2. “Fair value measurements” for further information.

(3) Trading Activities

Assets and liabilities for trading purposes

Please refer to Item 4. Financial Information, 1. Consolidated Financial Statements, Note 2. “Fair value measurements” and Note 3. “Derivative instruments and hedging activities” regarding the balances of assets and liabilities for trading purposes.

Risk management of trading activity

We adopt Value at Risk (“VaR”) for measurement of market risk arising from trading activity.

1) Assumptions on VaR

•

Confidence Level: 99%

•

Holding period: One day

•

Consideration of price movement among the products

2) Records of VaR


	Billions of yen
	March 31, 2013			December 31, 2013
Equity	¥	1.3		¥	3.6
Interest rate		5.0			6.7
Foreign exchange		1.9			2.6

Subtotal		8.2			12.9
Diversification benefit		(3.1	)		(4.3	)

VaR	¥	5.1		¥	8.6


	Billions of yen
	Nine months ended December 31, 2013
	Maximum		Minimum		Average
VaR	¥	9.9	¥	4.4	¥	6.8

(4) Deferred Tax Assets Information

1) Details of deferred tax assets and liabilities

Details of deferred tax assets and liabilities reported within Other assets—Other and Other liabilities respectively in the consolidated balance sheets as of December 31, 2013 are as follows:


	Millions of yen
	December 31, 2013
Deferred tax assets
Depreciation, amortization and valuation of fixed assets	¥	11,995
Investments in subsidiaries and affiliates		88,978
Valuation of financial instruments		109,603
Accrued pension and severance costs		14,091
Other accrued expenses and provisions		109,714
Operating losses		395,781
Other		1,737

Gross deferred tax assets		731,899
Less—Valuation allowance		(529,805	)

Total deferred tax assets		202,094

Deferred tax liabilities
Investments in subsidiaries and affiliates		91,428
Valuation of financial instruments		60,141
Undistributed earnings of foreign subsidiaries		714
Valuation of fixed assets		22,440
Other		3,194

Total deferred tax liabilities		177,917

Net deferred tax assets	¥	24,177

2) Calculation method of deferred tax assets

In accordance with U.S. GAAP, we recognize deferred tax assets to the extent we believe that it is more likely than not that a benefit will be realized. A valuation allowance is provided for tax benefits available to us, which are not deemed more likely than not to be realized.

(5) Qualitative Disclosures about Market Risk

1) Risk Management

The business activities of the Nomura Group are exposed to various risks such as market risk, credit risk, operational risk and other risks caused by external factors. We have established a risk management framework to provide comprehensive controls, monitoring and reporting of these risks in order to maintain financial soundness and the Company’s corporate values.

2) Global Risk Management Structure

The Board of Directors has established the “Structure for Ensuring Appropriate Business of Nomura Holdings, Inc.” as the Company’s basic principle and set up a framework for the management of risk of loss based on this. In addition, they are continuously making efforts to improve, strengthen and build up our risk management capabilities under this framework. Besides this, the Group Integrated Risk Management Committee, upon delegation of the Executive Management Board has established the Integrated Risk Management Policy, describing the overall risk management framework including the fundamental principles concerning risk management and organization and this is under continuous improvement.

Market Risk

Market risk refers to the potential loss from fluctuations in the value of assets and liabilities due to fluctuations in market factors, e.g. interest rates, foreign exchange rates, equity prices, credit spreads, indices, volatilities, correlations or other market factors. This type of risk primarily impacts our trading activities. Effective management of this risk requires the ability to analyze a complex and constantly changing global market environment, identify problematic trends and ensure that appropriate action is taken in a timely manner.

Nomura uses a variety of complementary tools to measure, model and aggregate market risk. Our principle statistical measurement tool to assess and monitor market risk on an ongoing basis is Value at Risk (“VaR”). Limits on VaR are set in line with the Nomura Group’s risk appetite as expressed through economic capital. In addition to VaR, we use stress testing and sensitivity analysis to measure and analyze our market risk. Sensitivities are measures used to show the potential changes to a portfolio due to standard moves in market risk factors. They are specific to each asset class and cannot usually be aggregated across risk factors. Market risk is monitored against a set of approved limits, with daily reports and other management information provided to the business units and senior management.

Credit Risk

The Nomura Group defines credit risk as the risk of losses arising from an obligor or counterparty’s default, insolvency or administrative proceeding which results in the obligor’s failure to meet its contractual obligations in accordance with agreed terms. This includes both on and off-balance sheet exposures. It is also the risk of loss arising through a credit valuation adjustment (CVA) associated with deterioration in the credit worthiness of a counterparty.

For controlling credit risk appropriately, the Nomura Group has set out its basic principles in the Credit Risk Management Policy, a policy that balances the various needs of our clients whilst ensuring Nomura is taking appropriate risks and receiving sufficient returns in line with our corporate values. Under these basic principles, Nomura has established a robust and comprehensive credit risk management framework.

The Nomura Group has been applying the Foundation Internal Rating Based Approach in calculating Credit Risk Weighted Asset for regulatory capital calculation since the end of March 2011. However, the Standardized Approach is applied to certain business units or asset types, which are considered immaterial to the calculation of credit risk weighted assets.

The exposure calculation model used for managing counterparty credit risk within credit limits has also been used for the Internal Model Method based exposure calculation for regulatory capital reporting purposes since the end of December 2012.

Operational Risk Management

In our Operational Risk Management Policy, we define operational risk as the risk of loss resulting from inadequate or failed internal processes, people, and systems or from external events. It excludes strategic risk (the risk of loss as a result of poor strategic business decisions), but includes the risk of breach of legal and regulatory requirements, and the risk of damage to our reputation if caused by an operational risk.

We have established an Operational Risk Management Framework in order to allow us to identify, assess, manage, monitor and report on Operational Risk. Operational Risk Appetite is defined through a mixture of qualitative appetite statements and quantitative measures utilizing key components of the Operational Risk Management Framework.

The Nomura Group uses The Standardized Approach for calculating regulatory capital for operational risk. This involves using a 3 year average of gross income, allocated to business lines and multiplied by a fixed percentage determined by the Japanese Financial Services Agency (“FSA”), to establish the amount of required operational risk capital.

(6) Liquidity and Capital Resources

Funding and Liquidity Management

Overview

We define liquidity risk as the potential inability to meet financial obligations as they become due. This risk could arise from an inability to access the secured or unsecured debt markets, a deterioration in our credit ratings, a failure to manage unplanned changes in funding requirements, a failure to liquidate assets quickly and with minimal loss in value, or changes in regulatory capital restrictions which may prevent the free flow of funds between different group entities. Liquidity risk could be due both to Nomura-specific and market-wide events. Liquidity risk management policy is based on liquidity risk appetite which the Group Integrated Risk Management Committee formulates upon delegation by the Executive Management Board (“EMB”). Nomura seeks to ensure continuous liquidity across market cycles and periods of market stress. The primary objective is to ensure that all funding requirements and unsecured debt obligations that fall due within one year can be met without additional unsecured funding or forced liquidation of assets.

We have in place a number of Liquidity Risk Management frameworks that enable us to achieve our primary liquidity objective. These frameworks include (1) Centralized Control of Residual Cash; (2) Appropriate Funding and Diversification of Funding Sources and Maturities Commensurate with the Composition of Assets; (3) Management of Credit Lines to Nomura Group Entities; (4) Implementation of Liquidity Stress Tests; and (5) Contingency Funding Plan.

Our EMB has the authority to make decisions concerning the group liquidity management. The Chief Financial Officer (“CFO”) has the operational authority and responsibility over our liquidity management based on decisions made by the EMB.

1. Centralized Control of Residual Cash

We centrally control residual cash held at Nomura Group entities for effective utilization purposes. As for the usage of funds, we manage the overall level of unsecured funding and set internal limits on the additional amount of unsecured funding available across Nomura Group. The limit for unsecured funding is set by the EMB and monitored closely by Global Treasury.

In order to enable us to transfer funds smoothly among group entities, we limit issuance of securities by regulated broker-dealers or banking entities. We actively seek to concentrate in unsecured funding at either Nomura or unregulated issuing entities. The primary benefits of this strategy include cost minimization, wider investor name recognition and greater flexibility in providing funding to various subsidiaries across Nomura Group.

2. Appropriate Funding and Diversification of Funding Sources and Maturities Commensurate with the Composition of Assets

We seek to maintain a surplus of long-term debt and equity above the cash capital requirements of our assets. This enables us to fund our operations for at least one year in a stress event, without needing to raise additional unsecured funding or forcing the liquidation of assets. The amount of liquidity required is based on an internal model which incorporates the following requirements:

(i)

Our ability to finance assets using secured funding, including repurchase agreements and securities lending transactions. The cash capital requirements are calculated using conservative estimates of the assets secured borrowing power in stressed scenarios.

(ii)

Goodwill and identifiable intangible assets, property, equipment and other illiquid assets.

(iii)

Collateral requirements on derivative contracts arising as a result of a two-notch downgrade in our credit rating.

Collateral requirements to support potential increased intraday collateral requirements from our clearers and settlement agents arising as a result of a two-notch downgrade in our credit rating.

In addition, other unencumbered assets held at exchanges for other related requirements are also funded with long-term liquidity.

(iv)

Commitments to lend to external counterparties based on the probability of drawdown.

(v)

Capital or other forms of financing in our regulated subsidiaries that is in excess of their long-term cash capital requirements.

Our internal model takes into account legal, regulatory and tax restrictions that may impact the ability to freely transfer of liquidity across the entities within the group.

We seek to achieve diversification of our funding by market, instrument type, investors, currency, and maturity in order to reduce our reliance on any one funding source and reduce refinancing risk.

We diversify funding by issuing various types of debt instruments—these include both structured loans and notes. Structured notes are debt obligations with returns linked to other interest or equity, indices, currencies or commodities. We issue structured notes in order to increase the diversity of our debt instruments. We typically hedge the returns we are obliged to pay with derivative positions and/or the underlying assets to maintain funding consistency with our unsecured long term debt.

2.1 Short-Term Unsecured Debt

Our short-term unsecured debt consists primarily of short-term bank borrowings (including long-term bank borrowings maturing within one year), other loans, commercial paper, deposits at banking entities, certificates of deposit and bonds and notes maturing within one year. Deposits at banking entities and certificates of deposit comprise customer deposits and certificates of deposit held by our banking subsidiaries.

The following table presents an analysis of our short-term unsecured debt by type of financial liability as of March 31, 2013 and December 31, 2013.


	Billions of yen
	March 31, 2013		December 31, 2013
Short-term bank borrowings	¥	621.3	¥	605.9
Other loans		42.4		99.7
Commercial paper		296.7		208.3
Deposit at banking entities		781.4		776.3
Certificates of deposit		214.5		202.7
Bonds and notes maturing within one year		337.0		790.4

Total short-term unsecured debt⁽¹⁾	¥	2,293.3	¥	2,683.3

(1)

Short-term unsecured debt includes the current portion of long-term unsecured debt.

2.2 Long-Term Unsecured Debt

We meet our long-term capital requirements and also achieve both cost-effective funding and an appropriate maturity profile by routinely funding through long-term debt and diversifying across various maturities and currencies.

Our long-term unsecured debt includes senior and subordinated debt issued through U.S. registered shelf offerings and our U.S. registered medium-term note programs, our Euro medium-term note programs, registered shelf offerings in Japan and various other bond programs.

As a globally competitive financial service group in Japan, we have access to multiple markets worldwide and major funding centers. The Company, NSC, Nomura Europe Finance N.V. and Nomura Bank International plc are the main group entities that borrow externally, issue debt instruments and engage in other funding activities. By raising funds to match the currencies and liquidities of our assets or by using foreign exchange swaps as may be necessary, we pursue optimization of our funding structures.

We use a wide range of products and currencies to ensure that our funding is efficient and well diversified across markets and investor types. Our unsecured senior debt is mostly issued without financial covenants, such as covenants related to adverse changes in our credit ratings, cash flows, results of operations or financial ratios, which could trigger an increase in our cost of financing or accelerate the maturity of the debt.

The following table presents an analysis of our long-term unsecured debt by type of financial liability as of March 31, 2013 and December 31, 2013.


	Billions of yen
	March 31, 2013		December 31, 2013
Long-term deposit at banking entities	¥	76.2	¥	124.8
Long-term bank borrowings		2,173.7		2,083.9
Other loans		133.9		132.4
Bonds and notes⁽¹⁾		4,073.5		3,937.4

Total long-term unsecured debt	¥	6,457.3	¥	6,278.5

NHI shareholders’ equity	¥	2,294.4	¥	2,492.5

(1)

Excludes “long-term bonds and notes issued by consolidated VIEs” that meet the definition of Variable Interest Entities (“VIEs”) under ASC 810, “Consolidation” and secured financing transactions recognized within long-term borrowings as a result of transfers of financial assets that are accounted for as financings rather than sales in accordance with ASC 860.

2.3 Maturity Profile

We also seek to maintain an average maturity for plain vanilla instruments greater than or equal to three years. A major part of our medium-term notes are structured and linked to interest or equity, indices, currencies or commodities. Conditions for calling notes linked to indices are individually determined. These maturities are evaluated based on our internal model and monitored by Global Treasury. Maturities for plain vanilla debt securities and borrowings are evaluated based on contractual maturities. Where there is a possibility that notes may be called prior to their scheduled maturity date, maturities are based on our internal stress option adjusted model. This model values the embedded optionality under stress market conditions in order to determine when the note is likely to be called.

2.4 Secured Borrowings

We typically fund our trading activities on a secured basis through secured borrowings, repurchase agreements and Japanese “Gensaki Repo” transactions. Repo transactions involve the selling of government and government agency securities under agreements with clients to repurchase these securities from clients. Japanese “Gensaki Repo” transactions have no margin requirements or substitution rights. We believe these funding activities in the secured markets are more cost-efficient and less credit-rating sensitive than financing in the unsecured market. Also, repurchase agreements tend to be short-term, often overnight. We manage the liquidity risks arising from secured funding by transacting with a diverse group of global counterparties, delivering various types of securities collateral, and actively seeking for long-term agreements. For more detail of secured borrowings and repurchase agreements, see Note 4. “Collateralized transactions” in our consolidated financial statements.

3. Management of Credit Lines to Nomura Group entities

We maintain committed facility agreements with financial institutions for Nomura Group entities in order to provide contingent financing sources. We have structured facilities to ensure that the maturity dates of these facilities are distributed evenly throughout the year in order to prevent excessive maturities of facilities in any given period. While the ability to borrow under these facilities is subject to customary lending conditions and covenants, we do not believe that any of the covenant requirements will impair our ability to draw on the facilities. We occasionally test the effectiveness of our drawdown procedures.

4. Implementation of Liquidity Stress Tests

We maintain our liquidity portfolio and monitor our sufficiency of liquidity based on an internal model which simulates changes in cash outflow under specified stress scenarios to comply with our above mentioned liquidity management policy.

We assess the liquidity requirements of the Nomura Group under various stress scenarios with differing levels of severity over multiple time horizons. We evaluate these requirements under Nomura-specific and broad market-wide events, including potential credit rating downgrades at our parent company and subsidiary levels that may impact us by loss of access to unsecured capital markets, additional collateral posting requirements, limited or no access to secured funding markets and other events. We call this risk analysis our “Maximum Cumulative Outflow (“MCO”)” framework.

The MCO framework is designed to incorporate the primary liquidity risks for Nomura and models the relevant cash flows in the following two primary scenarios:

•

Stressed scenario—To maintain adequate liquidity during a severe market-wide liquidity event without raising additional funds through unsecured financing or the liquidation of assets for a year; and

•

Acute stress scenario—To maintain adequate liquidity during a severe market-wide liquidity event coupled with credit concerns regarding Nomura’s liquidity position, without raising additional funds through unsecured funding or the liquidation of assets for one month.

We assume that Nomura will not be able to liquidate assets or adjust its business model during the time horizons used in each of these scenarios. The MCO framework therefore defines the amount of liquidity required to be held in order to meet our expected liquidity needs in a stress event to a level we believe appropriate based on our liquidity risk appetite.

As of December 31, 2013, our liquidity portfolio exceeded net cash outflows under the stress scenarios described above.

To ensure a readily available source for a potential liquidity requirement, we maintain a liquidity portfolio in the form of cash and highly liquid, unencumbered securities that may be sold or pledged to provide liquidity. As of December 31, 2013, our liquidity portfolio was ¥6,346.0 billion which generated a liquidity surplus taking into account a stress scenario. We recognize that the liquidity standards for financial institutions continue to be the subject of further discussion among the relevant supervisory bodies including the Basel Committee. The existing model and simulations upon which we currently rely may need to be reviewed depending on any new development in this area.

In addition to the liquidity portfolio, we have other unencumbered assets comprising mainly unpledged trading assets that can be used as an additional source of secured funding. This represented enough unsecured debt maturing within one year. The aggregate value of our liquidity portfolios and other unencumbered assets is sufficient against our total unsecured debt maturing within one year.

In the stress test, we assume the cash outflow as shown below and also assume that in certain instances, legal and regulatory requirements can restrict the flow of funds between entities in our consolidated group, and funds or securities may not freely move among us.

The size and structure of our liquidity portfolio takes into account immediate cash requirements arising from

(i)

Upcoming maturities of unsecured debt (maturities less than one year)

(ii)

Potential buybacks of our outstanding debt

(iii)

Loss of secured funding lines particularly for less liquid assets, over and above our cash capital estimates

(iv)

Fluctuation of funding needs under normal business circumstances

(v)

Cash and collateral outflows in a stress event

We constantly evaluate and modify our liquidity risk assumptions based on regulatory and market changes. The model we use in order to simulate the impact of stress scenarios assumes no liquidation of assets, no ability to issue additional unsecured funding, a widening of haircuts on outstanding repo funding, collateralization of clearing banks and depositories, drawdowns on loan commitments and loss of liquidity from market losses on inventory.

In 2008, the Basel Committee published Principles for Sound Liquidity Risk Management and Supervision (“Sound Principles”). To complement these principles, the Committee has further strengthened its liquidity framework by developing two minimum standards for funding liquidity. These standards have been developed to achieve two separate but complementary objectives.

The first objective is to promote short-term resilience of a bank’s liquidity risk profile by ensuring that it has sufficient high-quality liquid assets to survive a significant stress scenario lasting for one month. The Committee developed the Liquidity Coverage Ratio (“LCR”) to achieve this objective.

The second objective is to promote resilience over a longer time horizon by creating additional incentives for banks to fund their activities with more stable sources of funding on an ongoing basis. The Net Stable Funding Ratio (“NSFR”) has a time horizon of one year and has been developed to provide a sustainable maturity structure of assets and liabilities.

These two standards are comprised mainly of specific parameters which are internationally “harmonised” with prescribed values. Certain parameters, however, contain elements of national discretion to reflect jurisdiction-specific conditions.

After an observation period, the LCR, including any revisions, will be introduced on January 1, 2015. The NSFR, including any revisions, will move to a minimum standard by January 1, 2018.

5. Contingency Funding Plan

We have developed a detailed contingency funding plan to integrate liquidity risk control into our comprehensive risk management strategy and to enhance the quantitative aspects of our liquidity risk control procedures. As a part of our Contingency Funding Plan (“CFP”), we have developed an approach for analyzing and quantifying the impact of any liquidity crisis. This allows us to estimate the likely impact of both Nomura-specific and market-wide events; and specifies the immediate action to be taken to mitigate any risk. The CFP lists details of key internal and external parties to be contacted and the processes by which information is to be disseminated. This has been developed at a legal entity level in order to capture specific cash requirements at the local level—it assumes that our parent company does not have access to cash that may be trapped at a subsidiary level due to regulatory, legal or tax constraints. We periodically test the effectiveness of our funding plans for different Nomura-specific and market-wide events. We also have access to central banks including, but not exclusively, the Bank of Japan, which provide financing against various types of securities. These operations are accessed in the normal course of business and are an important tool in mitigating contingent risk from market disruptions.

Cash Flows

Cash and cash equivalents’ balance as of December 31, 2012 and as of December 31, 2013 were ¥820.0 billion and ¥1,257.5 billion, respectively. Cash flows from operating activities for the nine months ended December 31, 2012 were inflows of ¥346.4 billion due primarily to an increase in Securities sold under agreements to repurchase and for the comparable period in 2013 were inflows of ¥554.9 billion due primarily to an increase in Trading liabilities. Cash flows from investing activities for the nine months ended December 31, 2012 were outflows of ¥125.1 billion due primarily to Payments for purchases of office buildings, land, equipment and facilities and for the comparable period in 2013 were outflows of ¥130.2 billion due primarily to an increase in Non-trading debt securities, net. Cash flows from financing activities for the nine months ended December 31, 2012 were outflows of ¥490.4 billion due primarily to a decrease in Borrowings and for the comparable period in 2013 were outflows of ¥21.0 billion due primarily to Payments for cash dividends.

Balance Sheet and Financial Leverage

Total assets as of December 31, 2013, were ¥43,634.4 billion, an increase of ¥5,692.0 billion compared with ¥37,942.4 billion as of March 31, 2013, reflecting increases in Securities purchased under agreements to resell and Trading assets. Total liabilities as of December 31, 2013, were ¥41,106.0 billion, an increase of ¥5,482.5 billion compared with ¥35,623.5 billion as of March 31, 2013, reflecting increases in Securities sold under agreements to repurchase and Trading liabilities. NHI shareholders’ equity as of December 31, 2013, was ¥2,492.5 billion, an increase of ¥198.1 billion compared with ¥2,294.4 billion as of March 31, 2013, due to increases in Retained earnings and Accumulated other comprehensive income (loss).

We seek to maintain sufficient capital at all times to withstand losses due to extreme market movements. The EMB is responsible for implementing and enforcing capital policies. This includes the determination of our balance sheet size and required capital levels. We continuously review our equity capital base to ensure that it can support the economic risk inherent in our business. There are also regulatory requirements for minimum capital of entities that operate in regulated securities or banking businesses.

As leverage ratios are commonly used by other financial institutions similar to us, we voluntarily provide a Leverage ratio and Adjusted leverage ratio primarily for benchmarking purposes so that users of our annual report can compare our leverage against other financial institutions. Adjusted leverage ratio is a non-GAAP financial measure that Nomura considers to be a useful supplemental measure of leverage. There are currently no regulatory or statutory reporting requirements which require us to disclose leverage ratios.

The following table sets forth NHI shareholders’ equity, total assets, adjusted assets and leverage ratios:


	Billions of yen, except ratios
	March 31, 2013		December 31, 2013
NHI shareholders’ equity	¥	2,294.4	¥	2,492.5
Total assets		37,942.4		43,634.4
Adjusted assets⁽¹⁾		23,827.1		27,153.1
Leverage ratio⁽²⁾		16.5x		17.5x
Adjusted leverage ratio⁽³⁾		10.4x		10.9x

(1)	Represents total assets less Securities purchased under agreements to resell and Securities borrowed. Adjusted assets is a non-GAAP financial measure and is calculated as follows:


	Billions of yen
	March 31, 2013		December 31, 2013
Total assets	¥	37,942.4	¥	43,634.4
Less:
Securities purchased under agreements to resell		8,295.4		9,722.0
Securities borrowed		5,819.9		6,759.3

Adjusted assets	¥	23,827.1	¥	27,153.1

(2)	Equals total assets divided by NHI shareholders’ equity.

(3)	Equals adjusted assets divided by NHI shareholders’ equity.

Total assets increased by 15.0% reflecting primarily increases in Securities purchased under agreements to resell and Trading assets. NHI shareholders’ equity increased by 8.6%. Our leverage ratio went up from 16.5 times as of March 31, 2013 to 17.5 times as of December 31, 2013.

Adjusted assets increased due primarily to the increase in Trading assets. As a result, our adjusted leverage ratio went up from 10.4 times as of March 31, 2013 to 10.9 times as of December 31, 2013.

Consolidated Regulatory Capital Requirements

The FSA established the “Guideline for Financial Conglomerates Supervision” (“Financial Conglomerates Guideline”) in June 2005 and set out the rules on consolidated regulatory capital. We started monitoring our consolidated capital adequacy ratio in accordance with the Financial Conglomerates Guideline from April 2005.

The Company has been assigned as a Final Designated Parent Company who must calculate a consolidated capital adequacy ratio according to the Capital Adequacy Notice on Final Designated Parent Company in April 2011. Since then, we have been calculating our consolidated capital adequacy ratio according to the Capital Adequacy Notice on Final Designated Parent Company. Note that the Capital Adequacy Notice on Final Designated Parent Company has been revised to be in line with Basel 2.5 and Basel III, and we have calculated a Basel III-based consolidated capital adequacy ratio from the end of March 2013. Basel 2.5 includes significant change in calculation method of market risk and Basel III includes redefinition of capital items for the purpose of requiring higher quality of capital and expansion of the scope of credit risk-weighted assets calculation.

In accordance with Article 2 of the Capital Adequacy Notice on Final Designated Parent Company, our consolidated capital adequacy ratio is currently calculated based on the amounts of common equity Tier 1 capital, Tier 1 capital (sum of common equity Tier 1 capital and additional Tier 1 capital), total capital (sum of Tier 1 capital and Tier 2 capital), credit risk-weighted assets, market risk and operational risk. As of December 31, 2013, our common equity Tier 1 capital ratio (common equity Tier 1 capital divided by risk-weighted assets) is 12.0%, Tier 1 capital ratio (Tier 1 capital divided by risk-weighted assets) is 12.0% and consolidated capital adequacy ratio (total capital divided by risk-weighted assets) is 14.0% and we were in compliance with the requirement for each ratio set out in the Capital Adequacy Notice on Final Designated Parent Company (required level as of December 31, 2013 is 3.5% for common equity Tier 1 capital ratio, 4.5% for Tier 1 capital ratio and 8% for consolidated capital adequacy ratio).

The following table presents the Company’s consolidated capital adequacy ratios as of December 31, 2013.


	Billions of yen, except ratios
	December 31, 2013
Common equity Tier 1 capital	¥	2,306.2
Tier 1 capital		2,306.2
Total capital		2,682.6
Risk-Weighted Assets
Credit risk-weighted assets		9,803.0
Market risk equivalent assets		6,992.6
Operational risk equivalent assets		2,329.9

Total risk-weighted assets		19,125.4

Consolidated Capital Adequacy Ratios
Common equity Tier 1 capital ratio		12.0	%
Tier 1 capital ratio		12.0	%
Consolidated capital adequacy ratio		14.0	%

(7) Current Challenges

There is no significant change to our current challenges nor new challenges for the nine months ended December 31, 2013 and until the submission date of this report.

(8) Major Properties

During the nine months ended December 31, 2013, our consolidated subsidiary, Nomura Securities International, Inc. moved premises to Worldwide Plaza in New York, U.S.A.

Item 3. Company Information

1. Share Capital Information

(1) Total Number of Shares

A. Number of Authorized Share Capital


Type	Authorized Share Capital (shares)
Common stock		6,000,000,000
Class 1 preferred stock		200,000,000
Class 2 preferred stock		200,000,000
Class 3 preferred stock		200,000,000
Class 4 preferred stock		200,000,000

Total		6,000,000,000

The “Authorized Share Capital” is stated by the type of stock and the “Total” is the number of authorized share capital as referred in the Articles of Incorporation.

B. Issued Shares

Type

Number of
Issued Shares as of
December 31, 2013

Number of
Issued Shares as of
February 14, 2014

Trading Markets

Details

Common stock

3,822,562,601

Tokyo Stock Exchange⁽²⁾

1 unit is 100 shares

Nagoya Stock Exchange⁽²⁾

Singapore Stock Exchange

New York Stock Exchange

Total

3,822,562,601

—

(1)	Shares that may have increased from exercise of stock options between February 1, 2014 and the submission date (February 14, 2014) are not included in the number of issued shares as of the submission date.

(2)	Listed on the First Section of each stock/securities exchange.

(2) Stock Options

Stock acquisition rights issued during the three months ended December 31, 2013 are as follows:

Stock Acquisition Rights No. 55


Date of Resolution		October 28, 2013

Number of Stock Acquisition Right		27,110⁽¹⁾

Number of Stock Acquisition Right for Treasury (out of above number)		—

Type of Share under the Stock Acquisition Right		Common stock 1 unit is 100 shares

Number of Shares under the Stock Acquisition Rights		2,711,000

The Amount to be Paid upon Exercising the Stock Acquisition Right⁽²⁾		¥838 per share

Exercise Period of the Stock Acquisition Right		From November 19, 2015 to November 18, 2020

Issue Price of Shares and Capital Inclusion Price if Shares are Issued upon Exercise of the Stock Acquisition Rights		Issue Price of Shares ¥838 Capital Inclusion Price ¥555

Conditions to Exercise of Stock Acquisition Right		1. No Stock Acquisition Right may be exercised partially.

		2. The Grantee maintains a position as an Executive or Employee of the Company or the Company’s Subsidiary during the period between the granting of the stock acquisition right and the commencement of the exercise period. The Grantee is deemed to maintain such a position as an Executive or Employee of the Company or the Company’s Subsidiary even where the Grantee loses such position as a result of the situations determined in terms of the options. 3. A Grantee does not fall within either of the following cases at the time of the exercising the stock acquisition right. a) The Company or a Company’s Subsidiary has determined, in accordance with their Employment Regulations to dismiss the Grantee by warning or disciplinary procedures; or b) There is any other reason similar to a).

Restriction of Transfer of Stock Acquisition Rights		Any assignment of stock acquisition rights shall be subject to approval by resolution adopted by the Board of Directors of the Company.

Substituted Payment		—

Issue of the Stock Acquisition Right Attendant on Reorganization		—

1.	100 shares will be issued per one stock acquisition right.

2.	In the event that the shares are split or consolidated, the Exercise Price shall be adjusted in accordance with the following formula, and any fractions less than one (1) yen shall be rounded up to the nearest yen.


Adjusted Exercise Price = Exercise Price before Adjustment x		1
		Ratio of Split or Consolidation

In the event that the Company offers for subscription of the issuance of the new shares of common stock or the disposal of treasury shares of common stock of the Company at a paid-in amount below the market price of the common stock of the Company which is used in the adjustment formula for the Exercise Price (excluding Stock Acquisition Rights (including those attached to bonds with stock subscription rights) which is able to request for the delivery of the common shares of the Company and any other securities or the conversion, replacement or the exercise of the Stock Acquisition Rights and any request for purchase of additional less-than-a-full-unit shares) or in the event of the shares with acquisition request right that the Company issues the common stock of the Company in exchange of its acquisition as prescribed at a compensation below the market price of the common stock of the Company which is used in the adjustment formula for the Exercise Price (including the grant without any consideration), or in the event that the Company issues the stock acquisition right which is able to request for the delivery of the common stock of the Company (including those attached to bonds with stock subscription rights) and any other securities or rights (including the grant without any consideration) at a compensation below the market price of the common stock of the Company which is used in the adjustment formula for the Exercise Price, the Exercise Price shall be adjusted in accordance with the following formula, and any fraction of less than one (1) yen resulting from the adjustment shall be rounded up to the nearest yen.

Adjusted Exercise Price

Exercise Price before Adjustment

Number of Outstanding Shares

Number of Shares to be Delivered x Paid-in Amount
per Share

Market Price per Share

Number of (Outstanding + Shares to be Delivered)

(3) Exercise of Moving Strike Bonds with Subscription Warrant

None

(4) Rights Plan

None

(5) Changes in Issued Shares, Shareholders’ Equity, etc.


					Millions of yen
Date	Increase/Decrease of Issued Shares		Total Issued Shares		Increase/Decrease of Shareholders’ Equity— Common stock		Shareholders’ Equity— Common stock		Increase/Decrease of Additional capital reserve		Additional capital reserve
December 31, 2013		—		3,822,562,601		—		594,493		—		559,676

(6) Major Shareholders

Not applicable as this is the third quarter.

(7) Voting Rights

A. Outstanding Shares


	As of December 31, 2013
	Number of Shares			Number of Votes		Description
Stock without voting right		—			—	—
Stock with limited voting right (Treasury stocks, etc.)		—			—	—
Stock with limited voting right (Others)		—			—	—
Stock with full voting right (Treasury stocks, etc.)		(Treasury Stocks	)		—	—
		Common stock 106,068,200 (Crossholding Stocks	)		—	—
		Common stock 4,105,000
Stock with full voting right (Others)		Common stock 3,710,619,900			37,106,199	—
Shares less than 1 unit		Common stock 1,769,501			—	Shares less than 1 unit (100 shares)

Total Shares Issued		3,822,562,601			—	—

Voting Rights of Total Shareholders		—			37,106,199	—

2,000 shares held by Japan Securities Depository Center, Inc. are included in “Stock with full voting right (Others).” 67 shares of treasury stocks are included in “Shares less than 1 unit.”

B. Treasury Stocks


		As of December 31, 2013
Name	Address	Directly held shares		Indirectly held shares		Total		Percentage of Issued Shares (%)
(Treasury Stocks)
Nomura Holdings, Inc.	1-9-1, Nihonbashi, Chuo-ku, Tokyo, Japan		106,068,200		—		106,068,200		2.77
(Crossholding Stocks)
JAFCO Co., Ltd.	1-5-1, Otemachi, Chiyoda-ku, Tokyo, Japan		2,000,000		—		2,000,000		0.05
Nomura Research Institute, Ltd.	1-6-5, Marunouchi, Chiyoda-ku, Tokyo, Japan		1,000,000		—		1,000,000		0.03
Nomura Real Estate Development Co., Ltd.	1-26-2, Nishi Shinjuku, Shinjuku-ku, Tokyo, Japan		1,000,000		—		1,000,000		0.03
Takagi Securities Co., Ltd.	1-3-1-400, Umeda, Kita-ku, Osaka-shi, Osaka, Japan		100,000		—		100,000		0.00
Nomura Japan Corporation.	2-1-3 Nihonbashi Horidomecho, Chuo-ku, Tokyo, Japan		5,000		—		5,000		0.00

Total			110,173,200		—		110,173,200		2.88

Item 4. Financial Information

1	Preparation Method of Consolidated Financial Statements

(1)

The consolidated financial statements have been prepared in accordance with accounting principles, procedures, and presentations which are required in order to issue American Depositary Shares, i.e., U.S. generally accepted accounting principles, pursuant to Article 95 of “Regulations Concerning the Terminology, Forms and Preparation Methods of Quarterly Consolidated Financial Statements” (Cabinet Office Ordinance No. 64, 2007).

(2)

The consolidated financial statements have been prepared by making necessary adjustments to the financial statements of each consolidated company which were prepared in accordance with the accounting principles generally accepted in each country. Such adjustments have been made to comply with the principles noted in (1) above.

2	Quarterly Review Certificate

Under Article 193-2 Section 1 of the Financial Instruments and Exchange Act, Ernst & Young ShinNihon LLC performed a quarterly review of the consolidated financial statements for the nine and three months ended December 31, 2013.

<Note>

Although Ernst & Young ShinNihon LLC reported that they applied limited procedures in accordance with professional standards in Japan on the interim consolidated financial statements, prepared in Japanese for the nine and three months ended December 31, 2013, they have not performed any such limited procedures nor have they performed an audit on the English translated version of the consolidated financial statements for the above-mentioned periods which are included in this report on Form 6-K.

1. Consolidated Financial Statements

(1) Consolidated Balance Sheets (UNAUDITED)


			Millions of yen
	Notes		March 31, 2013			December 31, 2013
ASSETS
Cash and cash deposits:
Cash and cash equivalents			¥	805,087		¥	1,257,512
Time deposits				577,921			460,243
Deposits with stock exchanges and other segregated cash				269,744			340,420

Total cash and cash deposits				1,652,752			2,058,175

Loans and receivables:
Loans receivable (including ¥524,049 million and ¥303,876 million measured at fair value by applying the fair value option as of March 31, 2013 and December 31, 2013, respectively)		*2, 7		1,575,494			1,473,175
Receivables from customers				63,792			46,646
Receivables from other than customers				992,847			1,139,791
Allowance for doubtful accounts		*7		(2,258	)		(3,287	)

Total loans and receivables				2,629,875			2,656,325

Collateralized agreements:
Securities purchased under agreements to resell (including ¥997,788 million and ¥1,261,093 million measured at fair value by applying the fair value option as of March 31, 2013 and December 31, 2013, respectively)		*2		8,295,372			9,722,027
Securities borrowed				5,819,885			6,759,252

Total collateralized agreements				14,115,257			16,481,279

Trading assets and private equity investments:
Trading assets (including securities pledged as collateral of ¥7,707,813 million and ¥9,329,743 million as of March 31, 2013 and December 31, 2013, respectively; including ¥19,970 million and ¥9,009 million measured at fair value by applying the fair value option as of March 31, 2013 and December 31, 2013, respectively)		*2, 3		17,037,191			19,587,304
Private equity investments (including ¥44,134 million and ¥3,655 million measured at fair value by applying the fair value option as of March 31, 2013 and December 31, 2013, respectively)		*2		87,158			43,094

Total trading assets and private equity investments				17,124,349			19,630,398

Other assets:
Office buildings, land, equipment and facilities (net of accumulated depreciation and amortization of ¥355,831 million as of March 31, 2013 and ¥399,987 million as of December 31, 2013)				428,241			428,851
Non-trading debt securities		*2, 5		920,611			1,001,655
Investments in equity securities		*2		123,490			141,826
Investments in and advances to affiliated companies		*7		345,705			370,765
Other (including ¥1,632 million and ¥54,813 million measured at fair value by applying the fair value option as of March 31, 2013 and December 31, 2013, respectively)		*2, 5, 10		602,159			865,148

Total other assets				2,420,206			2,808,245

Total assets			¥	37,942,439		¥	43,634,422

(1) Consolidated Balance Sheets—(Continued) (UNAUDITED)


			Millions of yen
	Notes		March 31, 2013			December 31, 2013
LIABILITIES AND EQUITY
Short-term borrowings (including ¥77,036 million and ¥45,632 million measured at fair value by applying the fair value option as of March 31, 2013 and December 31, 2013, respectively)		*2	¥	738,445		¥	559,795
Payables and deposits:
Payables to customers				476,705			542,741
Payables to other than customers				864,962			1,356,889
Deposits received at banks				1,072,134			1,103,782

Total payables and deposits				2,413,801			3,003,412

Collateralized financing:
Securities sold under agreements to repurchase (including ¥264,767 million and ¥740,289 million measured at fair value by applying the fair value option as of March 31, 2013 and December 31, 2013, respectively)		*2		12,444,317			14,495,419
Securities loaned				2,158,559			2,636,357
Other secured borrowings				806,507			802,690

Total collateralized financing				15,409,383			17,934,466

Trading liabilities		*2, 3		8,491,296			10,350,094
Other liabilities (including ¥2,360 million and ¥1,460 million measured at fair value by applying the fair value option as of March 31, 2013 and December 31, 2013, respectively)		*2, 10		978,163			1,261,330
Long-term borrowings (including ¥1,664,536 million and ¥1,865,383 million measured at fair value by applying the fair value option as of March 31, 2013 and December 31, 2013, respectively)		*2		7,592,368			7,996,855

Total liabilities				35,623,456			41,105,952

Commitments and contingencies		*16
Equity:
Nomura Holdings, Inc. (“NHI”) shareholders’ equity:
Common stock
No par value share
Authorized—6,000,000,000 shares as of March 31, 2013 and December 31, 2013
Issued—3,822,562,601 shares as of March 31, 2013 and December 31, 2013
Outstanding—3,710,960,252 shares as of March 31, 2013 and 3,715,251,026 shares as of December 31, 2013				594,493			594,493
Additional paid-in capital				691,264			681,195
Retained earnings				1,136,523			1,259,207
Accumulated other comprehensive income (loss)		*15		(57,395	)		31,361

Total NHI shareholders’ equity before treasury stock				2,364,885			2,566,256
Common stock held in treasury, at cost—111,602,349 shares as of March 31, 2013 and 107,311,575 shares as of December 31, 2013				(70,514	)		(73,758	)

Total NHI shareholders’ equity				2,294,371			2,492,498

Noncontrolling interests				24,612			35,972
Total equity				2,318,983			2,528,470

Total liabilities and equity			¥	37,942,439		¥	43,634,422

(1) Consolidated Balance Sheets—(Continued) (UNAUDITED)

The following table presents the classification of consolidated variable interest entities’ (“VIEs”) assets and liabilities. The assets of a consolidated VIE may only be used to settle obligations of that VIE. Creditors do not have any recourse to Nomura beyond the assets held in the VIEs. See Note 6. “Securitizations and Variable Interest Entities” for further information.


	Billions of yen
	March 31, 2013		December 31, 2013
Cash and cash deposits	¥	13	¥	16
Trading assets and private equity investments		695		542
Other assets		93		94

Total assets	¥	801	¥	652

Trading liabilities	¥	21	¥	29
Other liabilities		11		23
Borrowings		458		351

Total liabilities	¥	490	¥	403

The accompanying notes are an integral part of these consolidated financial statements.

(2) Consolidated Statements of Income (UNAUDITED)


			Millions of yen
			Nine months ended December 31
	Notes		2012			2013
Revenue:
Commissions			¥	233,327		¥	384,681
Fees from investment banking				40,541			64,147
Asset management and portfolio service fees				102,241			125,157
Net gain on trading		*2, 3		261,516			347,134
Gain on private equity investments				6,543			11,738
Interest and dividends				296,048			316,018
Gain on investments in equity securities				14,767			20,394
Other		*9		404,817			111,802

Total revenue				1,359,800			1,381,071
Interest expense				199,781			213,938

Net revenue				1,160,019			1,167,133

Non-interest expenses:
Compensation and benefits				392,967			437,418
Commissions and floor brokerage				66,800			83,154
Information processing and communications				130,341			142,228
Occupancy and related depreciation				68,429			59,613
Business development expenses				34,553			28,361
Other		*9, 10		398,881			143,312

Total non-interest expenses				1,091,971			894,086

Income before income taxes				68,048			273,047
Income tax expense		*14		56,520			119,274

Net income			¥	11,528		¥	153,773
Less: Net income (loss) attributable to noncontrolling interests				(13,284	)		1,437

Net income attributable to NHI shareholders			¥	24,812		¥	152,336


			Yen
			Nine months ended December 31
	Notes		2012			2013
Per share of common stock:		*11
Basic—
Net income attributable to NHI shareholders per share			¥	6.73		¥	41.09
Diluted—
Net income attributable to NHI shareholders per share			¥	6.60		¥	39.83

The accompanying notes are an integral part of these consolidated financial statements.

(2) Consolidated Statements of Income—(Continued) (UNAUDITED)


			Millions of yen
			Three months ended December 31
	Notes		2012			2013
Revenue:
Commissions			¥	83,681		¥	121,434
Fees from investment banking				13,027			15,769
Asset management and portfolio service fees				35,017			42,074
Net gain on trading		*2, 3		88,188			108,544
Gain on private equity investments				11,631			10,985
Interest and dividends				99,745			102,602
Gain on investments in equity securities				8,858			7,505
Other		*9		118,834			38,508

Total revenue				458,981			447,421
Interest expense				69,895			68,000

Net revenue				389,086			379,421

Non-interest expenses:
Compensation and benefits				134,698			138,822
Commissions and floor brokerage				22,918			27,974
Information processing and communications				42,672			47,755
Occupancy and related depreciation				22,179			18,999
Business development expenses				12,051			11,029
Other		*9, 10		141,603			47,948

Total non-interest expenses				376,121			292,527

Income before income taxes				12,965			86,894
Income tax expense		*14		12,874			37,769

Net income			¥	91		¥	49,125
Less: Net income (loss) attributable to noncontrolling interests				(20,021	)		796

Net income attributable to NHI shareholders			¥	20,112		¥	48,329


			Yen
			Three months ended December 31
	Notes		2012			2013
Per share of common stock:		*11
Basic—
Net income attributable to NHI shareholders per share			¥	5.44		¥	13.02
Diluted—
Net income attributable to NHI shareholders per share			¥	5.33		¥	12.65

The accompanying notes are an integral part of these consolidated financial statements.

(3) Consolidated Statements of Comprehensive Income (UNAUDITED)


	Millions of yen
	Nine months ended December 31
	2012			2013
Net income	¥	11,528		¥	153,773
Other comprehensive income (loss):
Change in cumulative translation adjustments, net of tax		21,374			84,608
Defined benefit pension plans:
Pension liability adjustment		5,612			2,883
Deferred income taxes		(1,547	)		(974	)

Total		4,065			1,909
Non-trading securities:
Net unrealized gain on non-trading securities		5,393			6,844
Deferred income taxes		(1,239	)		(2,363	)

Total		4,154			4,481

Total other comprehensive income		29,593			90,998

Comprehensive income	¥	41,121		¥	244,771
Less: Comprehensive income (loss) attributable to noncontrolling interests		(10,909	)		3,679

Comprehensive income attributable to NHI shareholders	¥	52,030		¥	241,092


	Millions of yen
	Three months ended December 31
	2012			2013
Net income	¥	91		¥	49,125
Other comprehensive income (loss):
Change in cumulative translation adjustments, net of tax		42,717			57,177
Defined benefit pension plans:
Pension liability adjustment		1,550			878
Deferred income taxes		(424	)		(271	)

Total		1,126			607
Non-trading securities:
Net unrealized gain on non-trading securities		6,425			5,375
Deferred income taxes		(1,222	)		(1,718	)

Total		5,203			3,657

Total other comprehensive income		49,046			61,441

Comprehensive income	¥	49,137		¥	110,566
Less: Comprehensive income (loss) attributable to noncontrolling interests		(16,906	)		2,297

Comprehensive income attributable to NHI shareholders	¥	66,043		¥	108,269

The accompanying notes are an integral part of these consolidated financial statements.

(4) Consolidated Statements of Changes in Equity (UNAUDITED)


	Millions of yen
	Nine months ended December 31
	2012			2013
Common stock
Balance at beginning of year	¥	594,493		¥	594,493

Balance at end of period		594,493			594,493

Additional paid-in capital
Balance at beginning of year		698,771			691,264
Gain (loss) on sales of treasury stock		(1,589	)		(7,433	)
Issuance and exercise of common stock options		(7,560	)		(2,867	)
Purchase / sale of subsidiary shares, net		58			231

Balance at end of period		689,680			681,195

Retained earnings
Balance at beginning of year		1,058,945			1,136,523
Net income attributable to NHI shareholders		24,812			152,336
Cash dividends⁽¹⁾		(7,390	)		(29,652	)

Balance at end of period		1,076,367			1,259,207

Accumulated other comprehensive income (loss)
Cumulative translation adjustments
Balance at beginning of year		(110,652	)		(38,875	)
Net change during the period		20,128			83,522

Balance at end of period		(90,524	)		44,647

Defined benefit pension plans
Balance at beginning of year		(35,132	)		(28,518	)
Pension liability adjustment		3,980			1,909

Balance at end of period		(31,152	)		(26,609	)

Non-trading securities
Balance at beginning of year		635			9,998
Net unrealized gain on non-trading securities		3,110			3,325

Balance at end of period		3,745			13,323

Balance at end of period		(117,931	)		31,361

Common stock held in treasury
Balance at beginning of year		(99,819	)		(70,514	)
Repurchases of common stock		(4	)		(32,491	)
Sales of common stock		0			1
Common stock issued to employees		25,309			28,579
Other net change in treasury stock		(205	)		667

Balance at end of period		(74,719	)		(73,758	)

Total NHI shareholders’ equity

Balance at end of period		2,167,890			2,492,498

Noncontrolling interests
Balance at beginning of year		281,896			24,612
Cash dividends		(1,471	)		(40	)
Net income (loss) attributable to noncontrolling interests		(13,284	)		1,437
Accumulated other comprehensive income attributable to noncontrolling interests		2,375			2,242
Purchase / sale of subsidiary shares, net		61			337
Other net change in noncontrolling interests		(2,384	)		7,384

Balance at end of period		267,193			35,972

Total equity
Balance at end of period	¥	2,435,083		¥	2,528,470


(1) Dividends per share	Nine months ended December 31, 2012	¥	2.00	Three months ended December 31, 2012	¥	0.00
	Nine months ended December 31, 2013	¥	8.00	Three months ended December 31, 2013	¥	0.00

The accompanying notes are an integral part of these consolidated financial statements.

(5) Consolidated Statements of Cash Flows (UNAUDITED)


	Millions of yen
	Nine months ended December 31
	2012			2013
Cash flows from operating activities:
Net income	¥	11,528		¥	153,773
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		68,145			59,478
Gain on investments in equity securities		(14,767	)		(20,394	)
Deferred income taxes		32,690			83,589
Changes in operating assets and liabilities:
Time deposits		224,727			184,368
Deposits with stock exchanges and other segregated cash		(22,337	)		(39,268	)
Trading assets and private equity investments		(2,839,669	)		(1,091,270	)
Trading liabilities		(560,581	)		1,175,555
Securities purchased under agreements to resell, net of securities sold under agreements to repurchase		2,285,985			150,203
Securities borrowed, net of securities loaned		1,585,939			(361,278	)
Other secured borrowings		22,679			(3,818	)
Loans and receivables, net of allowance for doubtful accounts		100,018			166,621
Payables		(443,801	)		454,085
Bonus accrual		(8,955	)		(6,782	)
Accrued income taxes, net		(1,977	)		(77,307	)
Other, net		(93,268	)		(272,704	)

Net cash provided by operating activities		346,356			554,851

Cash flows from investing activities:
Payments for purchases of office buildings, land, equipment and facilities		(179,789	)		(178,764	)
Proceeds from sales of office buildings, land, equipment and facilities		85,423			145,832
Payments for purchases of investments in equity securities		(219	)		(161	)
Proceeds from sales of investments in equity securities		1,401			3,795
Decrease (increase) in loans receivable at banks, net		36,916			(7,996	)
Increase in non-trading debt securities, net		(70,949	)		(96,619	)
Other, net		2,138			3,740

Net cash used in investing activities		(125,079	)		(130,173	)

Cash flows from financing activities:
Increase in long-term borrowings		1,272,364			1,536,025
Decrease in long-term borrowings		(1,535,886	)		(1,242,308	)
Decrease in short-term borrowings, net		(253,824	)		(189,078	)
Increase (decrease) in deposits received at banks, net		41,616			(41,735	)
Proceeds from sales of common stock held in treasury		41			578
Payments for repurchases of common stock held in treasury		(4	)		(32,491	)
Payments for cash dividends		(14,730	)		(51,947	)

Net cash used in financing activities		(490,423	)		(20,956	)

Effect of exchange rate changes on cash and cash equivalents		18,671			48,703

Net increase (decrease) in cash and cash equivalents		(250,475	)		452,425
Cash and cash equivalents at beginning of year		1,070,520			805,087

Cash and cash equivalents at end of period	¥	820,045		¥	1,257,512

Supplemental information:
Cash paid during the period for—
Interest	¥	212,239		¥	219,353
Income tax payments, net	¥	25,806		¥	112,992

The accompanying notes are an integral part of these consolidated financial statements.

Notes to the Consolidated Financial Statements (UNAUDITED)

1. Basis of accounting:

In December 2001, Nomura Holdings, Inc. (“the Company”) filed a registration statement, in accordance with the Securities Exchange Act of 1934, with the United States Securities and Exchange Commission (“SEC”) in order to list its American Depositary Shares (“ADS”) on the New York Stock Exchange. Since then, the Company has had an obligation to file an annual report on Form 20-F with the SEC in accordance with the Securities Exchange Act of 1934.

Therefore, the Company and other entities in which it has a controlling financial interest (collectively “Nomura”) prepares consolidated financial statements in accordance with the accounting principles, procedures and presentations which are required in order to issue ADS, i.e., U.S. generally accepted accounting principles (“U.S. GAAP”), pursuant to Article 95 of “Regulations Concerning the Terminology, Forms and Preparation Methods of Quarterly Consolidated Financial Statements” (Cabinet Office Ordinance No. 64, 2007).

The following paragraphs describe the major differences between U.S. GAAP applied by Nomura and accounting principles generally accepted in Japan (“Japanese GAAP”) for the nine and three months ended December 31, 2013. Where the effect of these major differences are significant to Income before income taxes, Nomura discloses as (higher) or (lower) below the amount by which Income before income taxes based on U.S. GAAP was higher or lower than Japanese GAAP, respectively.

Scope of consolidation—

Under U.S. GAAP, the scope of consolidation is mainly determined by the ownership of a majority of the voting interests in an entity or by identifying the primary beneficiary of variable interest entities. Under Japanese GAAP, the scope of consolidation is determined by a “financial controlling model,” which takes into account the ownership level of voting interests in an entity and other factors.

In addition, U.S. GAAP provides a definition of investment companies for which a specialized audit and accounting guide applies, and entities that are subject to this guide carry all of their investments at fair value, with changes in fair value recognized through earnings. Under Japanese GAAP, under situations such as where a venture capital fund holds other companies’ shares for trading and investment promotion purposes, such companies are not considered as subsidiaries even if such shareholding otherwise meets the control criteria.

Unrealized gains and losses on investments in equity securities—

Under U.S. GAAP applicable to broker-dealers, minority investments in equity securities are measured at fair value with changes in fair value recognized in earnings. Under Japanese GAAP, these investments are also measured at fair value, but unrealized gains and losses, net of applicable income taxes, are reported in net assets as a separate item. Income before income taxes prepared under U.S. GAAP, therefore, was ¥14,932 million (higher) and ¥18,400 million (higher) for the nine months ended December 31, 2012 and 2013, respectively and ¥8,900 million (higher) and ¥6,199 million (higher) for the three months ended December 31, 2012 and 2013, respectively.

Unrealized gains and losses on non-trading debt and equity securities—

Under U.S. GAAP applicable to broker-dealers, non-trading securities are measured at fair value with changes in fair value recognized in earnings. Under Japanese GAAP, these securities are also measured at fair value, but unrealized gains and losses, net of applicable income taxes, are reported in net assets as a separate item. Income before income taxes prepared under U.S. GAAP, therefore, was ¥4,107 million (higher) and ¥5,035 million (lower) for the nine months ended December 31, 2012 and 2013, respectively, and ¥512 million (lower) and ¥827 million (lower) for the three months ended December 31, 2012 and 2013, respectively for non-trading debt securities. Income before income taxes prepared under U.S. GAAP was ¥4,519 million (lower) and ¥5,727 million (higher) for the nine months ended December 31, 2012 and 2013, respectively, and ¥2,792 million (lower) and ¥2,862 million (higher) for the three months ended December 31, 2012 and 2013, respectively for non-trading equity securities.

Retirement and severance benefits—

Under U.S. GAAP, gains or losses resulting from either experience that is different from an actuarial assumption or a change in assumption is amortized over the average remaining service period of employees when such gain or loss at the beginning of the year exceeds the “Corridor” which is defined as 10% of the larger of projected benefit obligation or the fair value of plan assets. In addition, U.S. GAAP requires recognition of the funded status of postretirement plans as an asset or a liability, measured as the difference between the fair value of the plan asset and the projected benefit obligation. Under Japanese GAAP, the gain or loss is amortized over a certain period regardless of the Corridor.

Amortization of goodwill and equity method goodwill—

Under U.S. GAAP, goodwill is not amortized and is tested for impairment periodically. Under Japanese GAAP, goodwill is amortized over a certain periods of less than 20 years using the straight-line method. Therefore, under U.S. GAAP, Income before income taxes was ¥3,515 million (lower) and ¥3,117 million (higher) for the nine months ended December 31, 2012 and 2013, respectively, and ¥1,545 million (higher) and ¥318 million (lower) for the three months ended December 31, 2012 and 2013, respectively.

Changes in the fair value of derivative contracts—

Under U.S. GAAP, all derivative contracts, including derivative contracts that have been designated as hedges of specific assets or specific liabilities, are carried at fair value, with changes in fair value recognized either in earnings or other comprehensive income. Under Japanese GAAP, derivative contracts that have been entered into for hedging purposes are carried at fair value with changes in fair value, net of applicable income taxes, recognized in net assets as a separate item.

Fair value for financial assets and financial liabilities—

Under U.S. GAAP, the fair value option may be elected for eligible financial assets and liabilities which would otherwise be carried on a basis other than fair value (“the fair value option”). Where the fair value option is elected, the financial asset or liability is carried at fair value with changes in fair value are recognized in earnings. Under Japanese GAAP, the fair value option is not permitted. Therefore, under U.S. GAAP, Income before income taxes was ¥4,504 million (higher) and ¥8,274 million (higher) for the nine months ended December 31, 2012 and 2013, respectively and ¥6,590 million (lower) and ¥12,892 million (higher) for the three months ended December 31, 2012 and 2013, respectively. In addition, non-marketable equity securities which are valued at fair value in the consolidated financial statements shall be valued at cost except in case of impairment loss recognition under Japanese GAAP.

Offsetting of amounts related to certain contracts—

Under U.S. GAAP, an entity that is party to a master netting arrangement is permitted to offset fair value amounts recognized for the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) against fair value amounts recognized for derivative instruments that have been offset under the same master netting arrangement. Under Japanese GAAP, offsetting of such amounts is not permitted.

Stock issuance costs—

Under U.S. GAAP, stock issuance costs are deducted from capital. Under Japanese GAAP, stock issuance costs are either immediately expensed or capitalized as a deferred asset and amortized over periods of up to three years.

Accounting for change in controlling interest in consolidated subsidiary’s shares—

Under U.S. GAAP, when a parent’s ownership interest decreases as a result of sales of a subsidiary’s common shares by the parent and such subsidiary becomes an equity method investee, the parent’s remaining investment in the former subsidiary is measured at fair value as of the date of loss of a controlling interest and a related valuation gain or loss is recognized in earnings. Under Japanese GAAP, the remaining investment on the parent’s consolidated balance sheet is computed as the sum of the carrying amount of investment in the equity method investee recorded in the parent’s stand-alone balance sheet as adjusted for the share of net income or losses and other adjustments from initial acquisition through to the date of loss of a controlling interest multiplied by the ratio of the remaining shareholding percentage against the holding percentage prior to loss of control.

Reclassification of the investment in Ashikaga Holdings—

On December 19, 2013, Ashikaga Holdings Co., Ltd. (“Ashikaga Holdings”) was listed on the First Section of the Tokyo Stock Exchange. Nomura’s investment in Ashikaga Holdings and related gains and losses had historically been primarily reported within Trading assets and private equity investments—Private equity investments and Revenue—Gain (loss) on private equity investments, respectively. Nomura carries this investment at fair value through election of the fair value option. However, following the public listing, the investment is now reported within Other assets—Other in the consolidated balance sheets, and gains and losses associated with this investment are now reported within Revenue—Other in the consolidated statements of income. These presentation changes are due to Nomura changing its purpose of share ownership in Ashikaga Holdings from gaining capital appreciation through Nomura’s investment banking business to enhancing its corporate value from more comprehensive company-wide perspectives as a result of the public listing.

New accounting pronouncements recently adopted—

No new accounting pronouncements relevant to Nomura were adopted during the three months ended September 30 and December 31, 2013.

The following new accounting pronouncements relevant to Nomura were adopted during the three months ended June 30, 2013:

Disclosures about offsetting assets and liabilities

In December 2011, the FASB issued amendments to ASC 210-20 “Balance Sheet—Offsetting” (“ASC 210-20”) through issuance of ASU 2011-11 “Disclosures about Offsetting Assets and Liabilities” (“ASU 2011-11”), and issued a related amendment in January 2013 through ASU 2013-01 “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities” (“ASU 2013-01”). These amendments require an entity to disclose information about rights of offset and related arrangements to enable users of its financial statements to understand the effect or potential effect of those arrangements on its financial position.

ASU 2011-11 and ASU 2013-01 are effective for fiscal years, and interim periods within those years, beginning on or after January 1, 2013 with required disclosures made retrospectively for all comparative periods presented.

Nomura adopted ASU 2011-11 and ASU 2013-01 from April 1, 2013. Because these amendments only require enhanced disclosures rather than change the guidance around when financial assets and financial liabilities can be offset, they did not have a material impact on these consolidated financial statements. See Note 3 “Derivative instruments and hedging activities” and Note 4 “Collateralized transactions” where the required disclosures have been provided.

Testing indefinite-lived intangible assets for impairment

In July 2012, the FASB issued amendments to ASC 350 “Intangibles—Goodwill and Other” (“ASC 350”) through issuance of ASU 2012-02 “Testing Indefinite-Lived Intangible Assets for Impairment” (“ASU 2012-02”). These amendments simplify indefinite-lived intangible assets impairment testing by permitting an entity to initially assess qualitatively whether it is necessary to perform the current quantitative impairment test required by ASC 350. If an entity determines that it is not more-likely-than-not (i.e. greater than 50%) that an indefinite-lived intangible asset fair value is less than its carrying amount, the quantitative test is not required.

ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted.

Nomura adopted ASU 2012-02 from April 1, 2013. Because these amendments only simplify when a quantitative test is required rather than change the quantitative test itself, ASU 2012-02 has not had a material impact on these consolidated financial statements.

Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income

In February 2013, the FASB issued amendments to ASC 220-10 “Comprehensive Income—Overall” through issuance of ASU 2013-02 “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income” (“ASU 2013-02”). The amendments require an entity to disclose additional information about amounts reclassified out of accumulated other comprehensive income, including changes in accumulated other comprehensive income balances by component of accumulated other comprehensive income and information about significant items reclassified out of accumulated other comprehensive income.

ASU 2013-02 supersedes the presentation requirements for reclassifications out of accumulated other comprehensive income in ASU 2011-05 “Presentation of Comprehensive Income” and ASU 2011-12 “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05”. ASU 2013-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2012, with early adoption permitted.

Nomura adopted ASU 2013-02 from April 1, 2013. Because these amendments only require changes in presentation and disclosure of amounts reclassified out of accumulated other comprehensive income rather than change the guidance regarding recognition of such amounts, they have not had a material impact on these consolidated financial statements.

Future accounting developments—

The following new accounting pronouncements relevant to Nomura will be adopted in future periods:

Release of cumulative currency translation adjustment amounts

In March 2013, the FASB issued amendments to ASC 810-10 “Consolidation—Overall” (“ASC 810-10”) and ASC 830-30 “Foreign Currency Matters—Translation of Financial Statements” (“ASC 830-30”) through issuance of ASU 2013-05 “Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity” (“ASU 2013-05”). The amendments resolve diversity in practice about whether guidance in ASC 810-10 or ASC 830-30 applies to the release of cumulative translation adjustment (“CTA”) amounts into earnings when a parent sells part or all of its investment in a foreign entity (or no longer holds a controlling financial interest in a subsidiary).

ASU 2013-05 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013 with early adoption allowed.

Nomura currently plans to adopt ASU 2013-05 from April 1, 2014 and is currently evaluating the potential impact it may have on these consolidated financial statements.

Investment companies

In June 2013, the FASB issued amendments to ASC 946 “Financial Services—Investment Companies” (“ASC 946”) through issuance of ASU 2013-08 “Amendments to the Scope, Measurement, and Disclosure Requirements” (“ASU 2013-08”). ASU 2013-08 modifies the guidance under ASC 946 for determining whether an entity is an investment company, which is an entity that is required to measure its investments at fair value, including controlling financial interests in investees that are not investment companies. ASU 2013-08 also requires an investment company to measure noncontrolling ownership interests in other investment companies at fair value rather than using the equity method of accounting, and requires certain additional disclosures including information about financial support provided, or contractually required to be provided, by an investment company to any of its investees.

ASU 2013-08 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013 with early adoption prohibited.

Nomura plans to adopt ASU 2013-08 from April 1, 2014 and is currently evaluating the potential impact it may have on these consolidated financial statements.

2. Fair value measurements:

The fair value of financial instruments

A significant amount of Nomura’s financial instruments are carried at fair value. Financial assets carried at fair value on a recurring basis are reported in the consolidated balance sheets within Trading assets and private equity investments, Loans and receivables, Collateralized agreements and Other assets. Financial liabilities carried at fair value on a recurring basis are reported within Trading liabilities, Short-term borrowings, Payables and deposits, Collateralized financing, Long-term borrowings and Other liabilities.

Other financial assets and financial liabilities are measured at fair value on a nonrecurring basis, where the primary measurement basis is not fair value but where fair value is used in specific circumstances after initial recognition, such as to measure impairment.

In all cases, fair value is determined in accordance with ASC 820 “Fair Value Measurements and Disclosures” (“ASC 820”) which defines fair value as the amount that would be exchanged to sell a financial asset or transfer a financial liability in an orderly transaction between market participants at the measurement date. It assumes that the transaction occurs in Nomura’s principal market, or in the absence of the principal market, the most advantageous market for the relevant financial assets or financial liabilities.

Fair value is usually determined on an individual financial instrument basis consistent with the unit of account of the financial instrument. However, certain financial instruments managed on a portfolio basis are valued as a portfolio, namely based on the price that would be received to sell a net long position (i.e. a net financial asset) or transfer a net short position (i.e. a net financial liability) consistent with how market participants would price the net risk exposure at the measurement date.

Financial assets carried at fair value also include investments in certain funds where, as a practical expedient, fair value is determined on the basis of net asset value per share (“NAV per share”) if the NAV per share is calculated in accordance with certain industry standard principles.

Increases and decreases in the fair value of assets and liabilities will significantly impact Nomura’s position, performance, liquidity and capital resources. As explained below, valuation techniques applied contain inherent uncertainties and Nomura is unable to predict the accurate impact of future developments in the market. Where appropriate, Nomura uses economic hedging strategies to mitigate its risk, although these hedges are also subject to unpredictable movements in the market.

Valuation methodology for financial instruments carried at fair value on a recurring basis

The fair value of financial instruments is based on quoted market prices including market indices, broker or dealer quotations or an estimation by management of the expected exit price under current market conditions. Various financial instruments, including cash instruments and over-the-counter (“OTC”) contracts, have bid and offer prices that are observable in the market. These are measured at the point within the bid-offer range which best represents Nomura’s estimate of fair value. Where quoted market prices or broker or dealer quotations are not available, prices for similar instruments or valuation pricing models are considered in the determination of fair value.

Where quoted prices are available in active markets, no valuation adjustments are taken to modify the fair value of assets or liabilities marked using such prices. Other instruments may be measured using valuation techniques, such as valuation pricing models incorporating observable parameters, unobservable parameters or a combination of both. Valuation pricing models use parameters which would be considered by market participants in valuing similar financial instruments.

Valuation pricing models and their underlying assumptions impact the amount and timing of unrealized and realized gains and losses recognized, and the use of different valuation pricing models or underlying assumptions could produce different financial results. Valuation uncertainty results from a variety of factors, including the valuation technique or model selected, the quantitative assumptions used within the valuation model, the inputs into the model, as well as other factors. Valuation adjustments are used to reflect the assessment of this uncertainty. Common valuation adjustments include model reserves, credit adjustments, close-out adjustments, and other appropriate instrument-specific adjustments, such as those to reflect transfer or sale restrictions.

The level of adjustments is largely judgmental and is based on an assessment of the factors that management believe other market participants would use in determining the fair value of similar financial instruments. The type of adjustments taken, the methodology for the calculation of these adjustments, and the inputs for these calculations are reassessed periodically to reflect current market practice and the availability of new information.

For example, the fair value of certain financial instruments includes adjustments for credit risk; both with regards to counterparty credit risk on positions held and Nomura’s own creditworthiness on positions issued. Credit risk on financial assets is significantly mitigated by credit enhancements such as collateral and netting arrangements. Any net credit exposure is measured using available and applicable inputs for the relevant counterparty. The same approach is used to measure the credit exposure on Nomura’s financial liabilities as is used to measure counterparty credit risk on Nomura’s financial assets.

Such valuation pricing models are calibrated to the market on a regular basis and inputs used are adjusted for current market conditions and risks. The Global Model Validation Group (“MVG”) within Nomura’s Risk Management Department reviews pricing models and assesses model appropriateness and consistency independently of the front office. The model reviews consider a number of factors about a model’s suitability for valuation and sensitivity of a particular product. Valuation models are calibrated to the market on a periodic basis by comparison to observable market pricing, comparison with alternative models and analysis of risk profiles.

As explained above, any changes in fixed income, equity, foreign exchange and commodity markets can impact Nomura’s estimates of fair value in the future, potentially affecting trading gains and losses. Where financial contracts have longer maturity dates, Nomura’s estimates of fair value may involve greater subjectivity due to the lack of transparent market data.

Fair value hierarchy

All financial instruments measured at fair value, including those carried at fair value using the fair value option, have been categorized into a three-level hierarchy (“fair value hierarchy”) based on the transparency of valuation inputs used by Nomura to estimate fair value. A financial instrument is classified in the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement of the financial instrument. The three levels of the fair value hierarchy are defined as follows, with Level 1 representing the most transparent inputs and Level 3 representing the least transparent inputs:

Level 1:

Unadjusted quoted prices for identical financial instruments in active markets accessible by Nomura at the measurement date.

Level 2:

Quoted prices in inactive markets or prices containing other inputs which are observable, either directly or indirectly. Valuation techniques using observable inputs reflect assumptions used by market participants in pricing financial instruments and are based on data obtained from independent market sources at the measurement date.

Level 3:

Unobservable inputs that are significant to the fair value measurement of the financial instrument. Valuation techniques using unobservable inputs reflect management’s assumptions about the estimates used by other market participants in valuing similar financial instruments. These valuation techniques are developed based on the best available information at the measurement date.

The availability of inputs observable in the market varies by product and can be affected by a variety of factors. Significant factors include, but are not restricted to the prevalence of similar products in the market, especially for customized products, how established the product is in the market, for example, whether it is a new product or is relatively mature, and the reliability of information provided in the market which would depend, for example, on the frequency and volume of current data. A period of significant change in the market may reduce the availability of observable data. Under such circumstances, financial instruments may be reclassified into a lower level in the fair value hierarchy.

Significant judgments used in determining the classification of financial instruments include the nature of the market in which the product would be traded, the underlying risks, the type and liquidity of market data inputs and the nature of observed transactions for similar instruments.

Where valuation models include the use of parameters which are less observable or unobservable in the market, significant management judgment is used in establishing fair value. The valuations for Level 3 financial instruments, therefore, involve a greater degree of judgment than those valuations for Level 1 or Level 2 financial instruments.

Certain criteria management use to determine whether a market is active or inactive include the number of transactions, the frequency that pricing is updated by other market participants, the variability of price quotes among market participants, and the amount of publicly available information.

The following tables present the amounts of Nomura’s financial instruments measured at fair value on a recurring basis as of March 31, 2013 and December 31, 2013 within the fair value hierarchy.


	Billions of yen
	March 31, 2013
	Level 1		Level 2		Level 3		Counterparty and Cash Collateral Netting⁽¹⁾			Balance as of March 31, 2013
Assets:
Trading assets and private equity investments⁽²⁾
Equities⁽³⁾	¥	1,008	¥	720	¥	129	¥	—		¥	1,857
Private equity investments⁽³⁾		—		—		87		—			87
Japanese government securities		3,331		—		—		—			3,331
Japanese agency and municipal securities		—		72		0		—			72
Foreign government, agency and municipal securities		3,574		1,466		91		—			5,131
Bank and corporate debt securities and loans for trading purposes		—		1,375		69		—			1,444
Commercial mortgage-backed securities (“CMBS”)		—		161		6		—			167
Residential mortgage-backed securities (“RMBS”)		—		2,720		4		—			2,724
Real estate-backed securities		—		—		68		—			68
Collateralized debt obligations (“CDO”) and other⁽⁴⁾		—		138		12		—			150
Investment trust funds and other		144		45		13		—			202

Total trading assets and private equity investments		8,057		6,697		479		—			15,233

Derivative assets⁽⁵⁾
Equity contracts		723		1,058		76		—			1,857
Interest rate contracts		4		21,621		148		—			21,773
Credit contracts		0		1,706		133		—			1,839
Foreign exchange contracts		—		2,094		11		—			2,105
Commodity contracts		1		0		0		—			1
Netting		—		—		—		(25,684	)		(25,684	)

Total derivative assets		728		26,479		368		(25,684	)		1,891

Subtotal	¥	8,785	¥	33,176	¥	847	¥	(25,684	)	¥	17,124

Loans and receivables⁽⁶⁾		—		521		3		—			524
Collateralized agreements⁽⁷⁾		—		998		—		—			998
Other assets
Non-trading debt securities		409		508		4		—			921
Other⁽³⁾		172		15		60		—			247

Total	¥	9,366	¥	35,218	¥	914	¥	(25,684	)	¥	19,814

Liabilities:
Trading liabilities
Equities	¥	922	¥	87	¥	0	¥	—		¥	1,009
Japanese government securities		2,151		—		—		—			2,151
Japanese agency and municipal securities		—		0		—		—			0
Foreign government, agency and municipal securities		2,627		477		—		—			3,104
Bank and corporate debt securities		—		288		0		—			288
Commercial mortgage-backed securities (“CMBS”)		—		1		—		—			1
Residential mortgage-backed securities (“RMBS”)		—		1		—		—			1
Investment trust funds and other		40		12		—		—			52

Total trading liabilities		5,740		866		0		—			6,606

Derivative liabilities⁽⁵⁾
Equity contracts		827		1,118		71		—			2,016
Interest rate contracts		2		21,312		202		—			21,516
Credit contracts		0		1,871		108		—			1,979
Foreign exchange contracts		0		1,994		14		—			2,008
Commodity contracts		1		1		0		—			2
Netting		—		—		—		(25,636	)		(25,636	)

Total derivative liabilities		830		26,296		395		(25,636	)		1,885

Subtotal	¥	6,570	¥	27,162	¥	395	¥	(25,636	)	¥	8,491

Short-term borrowings⁽⁸⁾		—		73		4		—			77
Payables and deposits⁽⁹⁾		—		0		1		—			1
Collateralized financing⁽⁷⁾		—		265		—		—			265
Long-term borrowings^(8)(10)(11)		114		1,263		222		—			1,599
Other liabilities⁽¹²⁾		39		11		0		—			50

Total	¥	6,723	¥	28,774	¥	622	¥	(25,636	)	¥	10,483


	Billions of yen
	December 31, 2013
	Level 1		Level 2		Level 3		Counterparty and Cash Collateral Netting⁽¹⁾			Balance as of December 31, 2013
Assets:
Trading assets and private equity investments⁽²⁾
Equities⁽³⁾	¥	2,616	¥	631	¥	98	¥	—		¥	3,345
Private equity investments⁽³⁾		—		—		43		—			43
Japanese government securities		2,436		—		—		—			2,436
Japanese agency and municipal securities		—		135		—		—			135
Foreign government, agency and municipal securities		4,884		1,347		31		—			6,262
Bank and corporate debt securities and loans for trading purposes		—		1,507		87		—			1,594
Commercial mortgage-backed securities (“CMBS”)		—		168		7		—			175
Residential mortgage-backed securities (“RMBS”)		—		2,310		3		—			2,313
Real estate-backed securities		—		—		0		—			0
Collateralized debt obligations (“CDO”) and other⁽⁴⁾		—		162		16		—			178
Investment trust funds and other		429		55		25		—			509

Total trading assets and private equity investments		10,365		6,315		310		—			16,990

Derivative assets⁽⁵⁾
Equity contracts		934		1,282		82		—			2,298
Interest rate contracts		13		20,772		120		—			20,905
Credit contracts		0		1,433		80		—			1,513
Foreign exchange contracts		—		3,636		18		—			3,654
Commodity contracts		1		0		0		—			1
Netting		—		—		—		(25,731	)		(25,731	)

Total derivative assets		948		27,123		300		(25,731	)		2,640

Subtotal	¥	11,313	¥	33,438	¥	610	¥	(25,731	)	¥	19,630

Loans and receivables⁽⁶⁾		—		293		11		—			304
Collateralized agreements⁽⁷⁾		—		1,261		—		—			1,261
Other assets
Non-trading debt securities		403		595		4		—			1,002
Other⁽³⁾		445		83		58		—			586

Total	¥	12,161	¥	35,670	¥	683	¥	(25,731	)	¥	22,783

Liabilities:
Trading liabilities
Equities	¥	954	¥	42	¥	0	¥	—		¥	996
Japanese government securities		2,456		—		—		—			2,456
Japanese agency and municipal securities		—		0		—		—			0
Foreign government, agency and municipal securities		3,510		669		—		—			4,179
Bank and corporate debt securities		—		350		0		—			350
Residential mortgage-backed securities (“RMBS”)		—		2		—		—			2
Collateralized debt obligations (“CDO”) and other⁽⁴⁾		—		1		—		—			1
Investment trust funds and other		128		1		—		—			129

Total trading liabilities		7,048		1,065		0		—			8,113

Derivative liabilities⁽⁵⁾
Equity contracts		1,016		1,420		64		—			2,500
Interest rate contracts		13		20,361		175		—			20,549
Credit contracts		0		1,710		40		—			1,750
Foreign exchange contracts		—		3,504		14		—			3,518
Commodity contracts		1		0		0		—			1
Netting		—		—		—		(26,081	)		(26,081	)

Total derivative liabilities		1,030		26,995		293		(26,081	)		2,237

Subtotal	¥	8,078	¥	28,060	¥	293	¥	(26,081	)	¥	10,350

Short-term borrowings⁽⁸⁾		—		45		1		—			46
Payables and deposits⁽⁹⁾		—		0		1		—			1
Collateralized financing⁽⁷⁾		—		740		—		—			740
Long-term borrowings^(8)(10)(11)		130		1,385		321		—			1,836
Other liabilities⁽¹²⁾		228		77		1		—			306

Total	¥	8,436	¥	30,307	¥	617	¥	(26,081	)	¥	13,279

(1)	Represents the amount offset under counterparty netting of derivative assets and liabilities as well as cash collateral netting against net derivatives.

(2)	Includes investments in certain funds measured at fair value on the basis of NAV per share as a practical expedient.

(3)	Includes equity investments that would have been accounted for under the equity method had Nomura not chosen to elect the fair value option.

(4)	Includes collateralized loan obligations (“CLO”) and asset-backed securities (“ABS”) such as those secured on credit card loans, auto loans and student loans.

(5)

Each derivative classification includes derivatives referencing multiple risk components. For example, interest rate contracts include complex derivatives referencing interest rate risk as well as foreign exchange risk or other factors such as prepayment rates. Credit contracts include credit default swaps as well as derivatives referencing corporate and government debt securities.

(6)	Includes loans for which the fair value option is elected.

(7)	Includes collateralized agreements or collateralized financing for which the fair value option is elected.

(8)	Includes structured notes for which the fair value option is elected.

(9)	Includes embedded derivatives bifurcated from deposits received at banks. If unrealized gains are greater than unrealized losses, deposits are reduced by the excess amount.

(10)	Includes embedded derivatives bifurcated from issued structured notes. If unrealized gains are greater than unrealized losses, borrowings are reduced by the excess amount.

(11)	Includes liabilities recognized from secured financing transactions that are accounted for as financings rather than sales. Nomura elected the fair value option for these liabilities.

(12)	Includes loan commitments for which the fair value option is elected.

Valuation techniques by major class of financial instrument

The valuation techniques used by Nomura to estimate fair value for major classes of financial instruments, together with the significant inputs which determine classification in the fair value hierarchy, are as follows.

Equities and equity securities reported within Other assets—Equities and equity securities reported within Other assets include direct holdings of both listed and unlisted equity securities, and fund investments. Listed equity securities are valued using quoted prices for identical securities from active markets where available. These valuations should be in line with market practice and therefore can be based on bid/offer prices as applicable or mid-market prices. Nomura determines whether the market is active depending on the sufficiency and frequency of trading activity. Where these securities are classified in Level 1 of the fair value hierarchy, no valuation adjustments are made to fair value. Listed equity securities traded in inactive markets are also generally valued using the exchange price and are classified in Level 2. Whilst rare in practice, Nomura may apply a discount or liquidity adjustment to the exchange price of a listed equity security traded in an inactive market if the exchange price is not considered to be an appropriate representation of fair value. These adjustments are determined by individual security and are not determined or influenced by the size of holding. The amount of such adjustments made to listed equity securities traded in inactive markets was ¥nil as of March 31, 2013 and December 31, 2013, respectively. Unlisted equity securities are valued using the same methodology as private equity investments described below and are usually classified in Level 3 because significant valuation inputs such as yields and liquidity discounts are unobservable. As a practical expedient, fund investments are generally valued using NAV per share where available. Publicly traded mutual funds which are valued using a daily NAV per share are classified in Level 1. Investments in funds where Nomura has the ability to redeem its investment with the investee at NAV per share as of the balance sheet date or within the near term are classified in Level 2. Investments in funds where Nomura does not have the ability to redeem in the near term or does not know when it can redeem are classified in Level 3. The Direct Capitalization Method (“DCM”) is used as a valuation technique for certain equity investments in real estate funds, with net operating income used as a measure of financial performance which is then applied to a capitalization rate dependent on the characteristics of the underlying real estate. Equity investments which are valued using DCM valuation techniques are generally classified in Level 3 since observable market capitalization rates are usually not available for identical or sufficiently similar real estate to that held within the real estate funds being valued. Nomura refined the fair value measurement of certain investments in unlisted equity securities reported within Other assets during the year ended March 31, 2013.

Private equity investments—The valuation of unlisted private equity investments requires significant management judgment because the investments, by their nature, have little or no price transparency. Private equity investments are initially carried at cost as an approximation of fair value. Adjustments to carrying value are made if there is third-party evidence of a change in value. Adjustments are also made, in the absence of third-party transactions, if it is determined that the expected exit price of the investment is different from carrying value. In reaching that determination, Nomura primarily uses either a discounted cash flow (“DCF”) or market multiple valuation technique. A DCF valuation technique incorporates estimated future cash flows to be generated from the underlying investee, as adjusted for an appropriate growth rate discounted at a weighted average cost of capital (“WACC”). Market multiple valuation techniques include comparables such as Enterprise Value/earnings before interest, taxes, depreciation and amortization (“EV/EBITDA”) ratios, Price/Earnings (“PE”) ratios, Price/Book ratios, Price/Embedded Value ratios and other multiples based on relationships between numbers reported in the financial statements of the investee and the price of comparable companies. A liquidity discount may also be applied to either a DCF or market multiple valuation to reflect the specific characteristics of the investee. Where possible these valuations are compared with the operating cash flows and financial performance of the investee or properties relative to budgets or projections, price/earnings data for similar quoted companies, trends within sectors and/or regions and any specific rights or terms associated with the investment, such as conversion features and liquidation preferences. Private equity investments are generally classified in Level 3 since the valuation inputs such as those mentioned above are usually unobservable.

Government, agency and municipal securities—Japanese and other G7 government securities are valued using quoted market prices, executable broker or dealer quotations, or alternative pricing sources. These securities are traded in active markets and therefore are classified within Level 1 of the fair value hierarchy. Non-G7 government securities, agency securities and municipal securities are valued using similar pricing sources but are generally classified in Level 2 as they are traded in inactive markets. Certain non-G7 securities may be classified in Level 1 because they are traded in active markets. Certain securities may be classified in Level 3 because they are traded infrequently and there is not sufficient information from comparable securities to classify them in Level 2. These are valued using DCF valuation techniques which include significant unobservable inputs such as credit spreads of the issuer.

Bank and corporate debt securities—The fair value of bank and corporate debt securities is primarily determined using DCF valuation techniques but also using broker or dealer quotations and recent market transactions of identical or similar debt securities, if available. Consideration is given to the nature of the broker and dealer quotations, namely whether these are indicative or executable, the number of available quotations and how these quotations compare to any available recent market activity or alternative pricing sources. The significant valuation inputs used for DCF valuations are yield curves, asset swap spreads, recovery rates and credit spreads of the issuer. Bank and corporate debt securities are generally classified in Level 2 of the fair value hierarchy because these valuation inputs are usually observable or market-corroborated. Certain bank and corporate debt securities will be classified in Level 3 because they are traded infrequently and there is insufficient information from comparable securities to classify them in Level 2, or credit spreads or recovery rates of the issuer used in DCF valuations are unobservable.

Commercial mortgage-backed securities (“CMBS”) and Residential mortgage-backed securities (“RMBS”)—The fair value of CMBS and RMBS is primarily determined using DCF valuation techniques but also using broker or dealer quotations and recent market transactions of identical or similar securities, if available. Consideration is given to the nature of the broker and dealer quotations, namely whether these are indicative or executable, the number of available quotations and how these quotations compare to any available recent market activity or alternative pricing sources. The significant valuation inputs include yields, prepayment rates, default probabilities and loss severities. CMBS and RMBS securities are generally classified in Level 2 because these valuation inputs are observable or market-corroborated. Certain CMBS and RMBS positions will be classified in Level 3 because they are traded infrequently and there is insufficient information from comparable securities to classify them in Level 2, or one or more of the significant valuation inputs used in DCF valuations are unobservable.

Real estate-backed securities—The fair value of real estate-backed securities is estimated using broker or dealer quotations, recent market transactions or by reference to a comparable market index. Consideration is given to the nature of the broker and dealer quotations, namely whether these are indicative or executable, the number of available quotations and how these quotations compare to any available recent market activity or alternative pricing sources. Where all significant inputs are observable, the securities will be classified in Level 2. For certain securities, no direct pricing sources or comparable securities or indices may be available. These securities are valued using DCF or DCM valuation techniques and are classified in Level 3 as the valuation includes significant unobservable valuation inputs such as yields, prepayment rates, default probabilities, loss severities and capitalization rates.

Collateralized debt obligations (“CDO”) and other—The fair value of CDOs is primarily determined using DCF valuation techniques but also using broker or dealer quotations and recent market transactions of identical or similar securities, if available. Consideration is given to the nature of the broker and dealer quotations, namely whether these are indicative or executable, the number of available quotations and how these quotations compare to any available recent market activity or alternative pricing sources. The significant valuation inputs used include market spread data for each credit rating, prepayment rates, default probabilities and loss severities. CDOs are generally classified in Level 2 of the fair value hierarchy because these valuation inputs are observable or market-corroborated. CDOs will be classified in Level 3 where one or more of the significant valuation inputs used in the DCF valuations are unobservable.

Investment trust funds and other—Investment trust funds are generally valued using NAV per share. Publicly traded funds which are valued using a daily NAV per share are classified in Level 1. For funds that are not publicly traded but Nomura has the ability to redeem its investment with the investee at NAV per share on the balance sheet date or within the near term, the investments are classified in Level 2. Investments where Nomura does not have the ability to redeem in the near term or does not know when it can redeem are classified in Level 3. The fair value of certain other investments reported within Investment trust funds and other is determined using DCF valuation techniques. These investments are classified in Level 3 as the valuation includes significant unobservable valuation inputs such as credit spreads of issuer and correlation.

Derivatives—Equity contracts—Nomura enters into both exchange-traded and OTC equity derivative transactions such as index and equity options, equity basket options and index and equity swaps. The fair value of exchange-traded equity derivatives is primarily determined using an unadjusted exchange price. These derivatives are generally traded in active markets and therefore are classified in Level 1 of the fair value hierarchy. Where these derivatives are not valued at the exchange price due to timing differences, these are classified in Level 2. The fair value of OTC equity derivatives is determined through option models such as Black-Scholes and Monte Carlo simulation. The significant valuation inputs used include equity prices, dividend yields, volatilities and correlations. Valuation adjustments are also made to model valuations in order to reflect counterparty credit risk on derivative assets and Nomura’s own creditworthiness on derivative liabilities. OTC equity derivatives are generally classified in Level 2 because all significant valuation inputs and adjustments are observable or market-corroborated. Certain longer-dated or more complex equity derivatives are classified in Level 3 where dividend yield, volatility or correlation valuation inputs are significant and unobservable.

Derivatives—Interest rate contracts—Nomura enters into both exchange-traded and OTC interest rate derivative transactions such as interest rate swaps, currency swaps, interest rate options, forward rate agreements, swaptions, caps and floors. The fair value of exchange-traded interest rate derivatives is primarily determined using an unadjusted exchange price. These derivatives are traded in active markets and therefore are classified in Level 1 of the fair value hierarchy. Where these derivatives are not valued at the exchange price due to timing differences, they are classified in Level 2. The fair value of OTC interest rate derivatives is determined through DCF valuation techniques as well as option models such as Black-Scholes and Monte Carlo simulation. The significant valuation inputs used include interest rates, forward foreign exchange (“FX”) rates, volatilities and correlations. Valuation adjustments are also made to model valuations in order to reflect counterparty credit risk on derivative assets and Nomura’s own creditworthiness on derivative liabilities. OTC interest rate derivatives are generally classified in Level 2 because all significant valuation inputs and adjustments are observable or market-corroborated. Certain longer-dated or more complex OTC interest rate derivatives are classified in Level 3 where forward FX rate, interest rate, volatility or correlation valuation inputs are significant and unobservable.

Derivatives—Credit contracts—Nomura enters into OTC credit derivative transactions such as credit default swaps and credit options on single names, indices or baskets of assets. The fair value of OTC credit derivatives is determined through DCF valuation techniques as well as option models such as Black-Scholes and Monte Carlo simulation. The significant valuation inputs used include interest rates, credit spreads, recovery rates, default probabilities, volatilities and correlations. Valuation adjustments are also made to model valuations in order to reflect counterparty credit risk on derivative assets and Nomura’s own creditworthiness on derivative liabilities. OTC credit derivatives are generally classified in Level 2 of the fair value hierarchy because all significant valuation inputs and adjustments are observable or market-corroborated. Certain longer-dated or more complex OTC credit derivatives are classified in Level 3 where credit spread, recovery rate, volatility or correlation valuation inputs are significant and unobservable.

Derivatives—Foreign exchange contracts—Nomura enters into both exchange-traded and OTC foreign exchange derivative transactions such as foreign exchange forwards and currency options. The fair value of exchange-traded foreign exchange derivatives is primarily determined using an unadjusted exchange price. These derivatives are traded in active markets and therefore are classified in Level 1 of the fair value hierarchy. Where these derivatives are not valued at the exchange price due to timing differences, they are classified in Level 2. The fair value of OTC foreign exchange derivatives is determined through DCF valuation techniques as well as option models such as Black-Scholes and Monte Carlo simulation. The significant valuation inputs used include interest rates, forward FX rates, spot FX rates and volatilities. Valuation adjustments are also made to model valuations in order to reflect counterparty credit risk on derivative assets and Nomura’s own creditworthiness on derivative liabilities. OTC foreign exchange derivatives are generally classified in Level 2 because all significant valuation inputs and adjustments are observable or market-corroborated. Certain longer-dated foreign exchange derivatives are classified in Level 3 where forward FX rate or volatility valuation inputs are significant and unobservable.

Derivatives—Commodity contracts—Nomura enters into OTC commodity derivative transactions such as commodity swaps, commodity forwards and commodity options. The fair value of OTC commodity derivatives is determined through DCF valuation techniques as well as option models such as Black-Scholes and Monte Carlo simulation. The significant valuation inputs used include commodity prices, interest rates, volatilities and correlations. Valuation adjustments are also made to model valuations in order to reflect counterparty credit risk on derivative assets and Nomura’s own creditworthiness on derivative liabilities. OTC commodity derivatives are generally classified in Level 2 of the fair value hierarchy because these valuation inputs and adjustments are observable or market-corroborated.

During the year ended March 31, 2012, Nomura began including valuation adjustments in its estimation of fair value of certain OTC derivatives relating to funding costs associated with these transactions to be consistent with how market participants in the principal market for these derivatives would determine fair value. This initially involved using the Overnight Indexed Swap curve rather than LIBOR curve to estimate the fair value of certain collateralized derivative contracts. During the year ended March 31, 2013, Nomura refined its valuation methodology to incorporate additional features of collateralized derivative transactions resulting in an additional loss of ¥11 billion recognized during that period. During the three months ended December 31, 2013, Nomura recognized an additional loss of ¥10 billion as a result of using more appropriate inputs to calculate the valuation adjustment for certain uncollateralized derivatives. This change reflects increased transparency around how market participants incorporate this funding cost into their pricing of such derivative transactions and consequently, how they estimate fair value. As part of its continuous review of the valuation methodologies applied by market participants, Nomura may further refine its valuation methodology of derivatives in future periods.

Loans—The fair value of loans carried at fair value either as trading assets or through election of the fair value option is primarily determined using DCF valuation techniques as quoted prices are typically not available. The significant valuation inputs used are similar to those used in the valuation of corporate debt securities described above. Loans are generally classified in Level 2 of the fair value hierarchy because all significant valuation inputs are observable. Certain loans, however, are classified in Level 3 because they are traded infrequently and there is not sufficient information from comparable securities to classify them in Level 2 or credit spreads of the issuer used in DCF valuations are significant and unobservable.

Collateralized agreements and Collateralized financing—The primary types of collateralized agreement and financing transactions carried at fair value are resale and repurchase agreements elected for the fair value option. The fair value of these financial instruments is primarily determined using DCF valuation techniques. The significant valuation inputs used include interest rates and collateral funding spreads such as general collateral or special rates. Resale and repurchase agreements are generally classified in Level 2 of the fair value hierarchy because these valuation inputs are usually observable.

Non-trading debt securities—These are debt securities held by certain non-trading subsidiaries in the group and are valued and classified in the fair value hierarchy using the same valuation techniques used for other debt securities classified as Government, agency and municipal securities and Bank and corporate debt securities described above.

Short-term and long-term borrowings (“Structured notes”)—Structured notes are debt securities issued by Nomura or by consolidated variable interest entities (“VIEs”) which contain embedded features that alter the return to the investor from simply receiving a fixed or floating rate of interest to a return that depends upon some other variables, such as an equity or equity index, commodity price, foreign exchange rate, credit rating of a third party or a more complex interest rate (i.e., an embedded derivative).

The fair value of structured notes is estimated using a quoted price in an active market for the identical liability if available, and where not available, using a mixture of valuation techniques that use the quoted price of the identical liability when traded as an asset, quoted prices for similar liabilities, similar liabilities when traded as assets, or an internal model which combines DCF valuation techniques and option pricing models, depending on the nature of the embedded features within the structured note. Where an internal model is used, Nomura estimates the fair value of both the underlying debt instrument and the embedded derivative components. The significant valuation inputs used to estimate the fair value of the debt instrument component include yield curves and prepayment rates. The significant valuation inputs used to estimate the fair value of the embedded derivative component are the same as those used for the relevant type of freestanding OTC derivative discussed above. A valuation adjustment is also made to the entire structured note in order to reflect Nomura’s own creditworthiness. To reflect Nomura’s own creditworthiness, the fair value of structured notes includes an adjustment of ¥8 billion as of March 31, 2013 and ¥6 billion as of December 31, 2013. This adjustment is determined based on recent observable secondary market transactions and executable broker quotes involving Nomura debt instruments and is therefore typically treated as a Level 2 valuation input. Structured notes are generally classified in Level 2 of the fair value hierarchy as all significant valuation inputs and adjustments are observable. Where any unobservable inputs are significant, such as volatilities and correlations used to estimate the fair value of the embedded derivative component, structured notes are classified in Level 3.

Long-term borrowings (“Secured financing transactions”)—Secured financing transactions are liabilities recognized when a transfer of a financial asset does not meet the criteria for sales accounting under ASC 860 “Transfers and Servicing” (“ASC 860”) and therefore the transaction is accounted for as a secured borrowing. These liabilities are valued using the same valuation techniques that are applied to the transferred financial assets which remain on the consolidated balance sheets and are therefore classified in the same level in the fair value hierarchy as the transferred financial assets. These liabilities do not provide general recourse to Nomura and therefore no adjustment is made to reflect Nomura’s own creditworthiness.

Valuation processes

In order to ensure the appropriateness of any fair value measurement of a financial instrument used within these consolidated financial statements, including those classified in Level 3 within the fair value hierarchy, Nomura operates a governance framework which mandates determination or validation of a fair value measurement by control and support functions independent of the trading businesses assuming the risk of the financial instrument. Such functions within Nomura with direct responsibility for either defining, implementing or maintaining valuation policies and procedures are as follows:

•

The Product Control Valuations Group (“PCVG”) within Nomura’s Finance Department has primary responsibility for determining and implementing valuation policies and procedures in connection with determination of fair value measurements. In particular, this group will ensure that valuation policies are documented for each type of financial instrument in accordance with U.S. GAAP. While it is the responsibility of market makers and investment professionals in our trading businesses to price our financial instruments, the PCVG are responsible for independently verifying or validating these prices. In the event of a difference in opinion or where the estimate of fair value requires judgment, the valuation used within these consolidated financial statements is made by senior managers independent of the trading businesses. This group reports to the Global Head of Product Control and ultimately to the Chief Financial Officer (“CFO”);

•

The Accounting Policy Group within Nomura’s Finance Department defines the group’s accounting policies and procedures in accordance with U.S. GAAP, including those associated with determination of fair value under ASC 820 and other relevant U.S. GAAP pronouncements. This group reports to the Global Head of Accounting Policy and ultimately to the CFO; and

•

The MVG within Nomura’s Risk Management Department validates the appropriateness and consistency of pricing models used to determine fair value measurements independently of those who design and build the models. This group reports to the Global Head of Market and Quantitative Risk.

The fundamental components of this governance framework over valuation processes within Nomura particularly as it relates to Level 3 financial instruments are the procedures in place for independent price verification, pricing model validation and revenue substantiation.

Independent price verification processes

The key objective of the independent price verification processes within Nomura is to verify the appropriateness of fair value measurements applied to all financial instruments within Nomura. In applying these control processes, observable inputs are used whenever possible and when unobservable inputs are necessary, the processes seek to ensure the valuation technique and inputs are appropriate, reasonable and consistently applied.

The independent price verification processes aim to verify the fair value of all positions to external levels on a regular basis. The process will involve obtaining data such as trades, marks and prices from internal and external sources and examining the impact of marking the internal positions at the external prices. Margin disputes within the collateral process will also be investigated to determine if there is any impact on valuations.

Where third-party pricing information sourced from brokers, dealers and consensus pricing services is used as part of the price verification process, consideration is given as to whether that information reflects actual recent market transactions or prices at which transactions involving identical or similar financial instruments are currently executable. If such transactions or prices are not available, the financial instrument will generally be classified in Level 3.

Where there is a lack of observable market information around the inputs used in a fair value measurement, then the PCVG and the MVG will assess the inputs used for reasonableness considering available information including comparable products, surfaces, curves and past trades. Additional valuation adjustments may be taken for the uncertainty in the inputs used, such as correlation and where appropriate trading desks may be asked to execute trades to evidence market levels.

Model review and validation

For more complex financial instruments pricing models are used to determine fair value measurements. The MVG performs an independent model approval process which incorporates a review of the model assumptions across a diverse set of parameters. Considerations include:

•

Scope of the model (different financial instruments may require different but consistent pricing approaches);

•

Mathematical and financial assumptions;

•

Full or partial independent benchmarking along with boundary and stability tests, numerical convergence, calibration quality and stability;

•

Model integration within Nomura’s trading and risk systems;

•

Calculation of risk numbers and risk reporting; and

•

Hedging strategies/practical use of the model.

New models are reviewed and approved by the MVG. The frequency of subsequent reviews is generally based on the model risk rating and the materiality of usage of the model with more frequent review where warranted by market conditions.

Revenue substantiation

Nomura’s Product Control function also ensures adherence to Nomura’s valuation policies through daily and periodic analytical review of net revenues. This process involves substantiating revenue amounts through explanations and attribution of revenue sources based on the underlying factors such as interest rates, credit spreads, volatilities, foreign exchange rates etc. In combination with the independent price verification processes, this daily, weekly, monthly and quarterly review substantiates the revenues made while helping to identify and resolve potential booking, pricing or risk quantification issues.

Level 3 financial instruments

As described above, the valuation of Level 3 financial assets and liabilities is dependent on certain significant inputs which cannot be observed in the market. Common characteristics of an inactive market include a low number of transactions of the financial instrument, stale or non-current price quotes, price quotes that vary substantially either over time or among market makers, non-executable broker quotes or little publicly released information.

If corroborative evidence is not available to value Level 3 financial instruments, fair value may be established using other equivalent products in the market. The level of correlation between the specific Level 3 financial instrument and the available benchmark instrument is considered as an unobservable parameter. Other techniques for determining an appropriate value for unobservable parameters may consider information such as consensus pricing data among certain market participants, historical trends, extrapolation from observable market data and other information Nomura would expect market participants to use in valuing similar instruments.

Use of reasonably possible alternative input assumptions to value Level 3 financial instruments will significantly influence fair value determination. Ultimately, the uncertainties described above about input assumptions imply that the fair value of Level 3 financial instruments is a judgmental estimate. The specific valuation for each instrument is based on management’s judgment of prevailing market conditions, in accordance with Nomura’s established valuation policies and procedures.

Quantitative information regarding significant unobservable inputs and assumptions

The following tables present information about the significant unobservable inputs and assumptions used by Nomura for financial instruments classified in Level 3 as of March 31, 2013 and December 31, 2013. These financial instruments will also typically include observable valuation inputs (i.e. Level 1 or Level 2 valuation inputs) which are not included in the table and are also often hedged using financial instruments which are classified in Level 1 or Level 2 of the fair value hierarchy.

March 31, 2013

Financial Instrument

Fair value
in billions of yen

Valuation
technique(s)

Significant unobservable inputs

Range of
valuation inputs⁽¹⁾

Weighted
Average⁽²⁾

Assets:

Trading assets and private equity investments

Equities

129

DCF

Yields

Liquidity discounts

7.6%

25.0 – 38.0%

7.6

35.4

DCM

Capitalization rates

5.2 – 6.7%

6.3

Private equity investments

DCF

WACC

Growth rates

Liquidity discounts

6.8%

0.0%

25.0%

6.8

0.0

25.0

Market multiples

EV/EBITDA ratios

PE ratios

Price/Book ratios

Price/Embedded value ratios
Liquidity discounts

3.7 – 11.3 x

7.7 x

0.4 x

0.0 – 33.0%

11.0

7.7

0.4

25.8

Foreign government, agency and municipal securities

DCF

Credit spreads

0.0 – 6.5%

0.7

Bank and corporate debt securities and loans for trading purposes

DCF

Credit spreads

Recovery rates

0.0 – 24.2%

0.1 – 36.4%

2.6

28.1

Commercial mortgage-backed securities (“CMBS”)

DCF

Yields

Default probabilities

Loss severities

0.0 – 25.0%

100.0%

0.0 – 80.0%

8.0

100.0

0.3

Residential mortgage-backed securities (“RMBS”)

DCF

Yields

Prepayment rates

Default probabilities

Loss severities

0.0 – 40.0%

0.0 – 8.2%

0.3 – 17.0%

22.0 – 90.0%

3.3

4.5

14.7

64.2

Real estate-backed securities

DCF

Yields

Default probabilities

Loss severities

1.8 – 15.0%

24.0 – 65.0%

80.0 – 100.0%

1.9

42.6

88.0

DCM

Capitalization rates

6.8%

6.8

Collateralized debt obligations (“CDO”) and other

DCF

Yields

Prepayment rates

Default probabilities

Loss severities

0.0 – 58.6%

0.0 – 15.0%

2.0 – 5.0%

30.0 – 75.0%

17.1

13.8

2.1

45.6

Investment trust funds and other

DCF

Credit spreads

Correlations

0.0 – 6.5%

0.50 – 0.70

0.6

0.60

Derivatives, net:

Equity contracts

Option models

Dividend yield

Volatilities

Correlations

0.0 – 11.0%

5.7 – 92.4%

(0.77) – 0.99

—

Interest rate contracts

(54

)

DCF/
Option models

Forward FX rates

Interest rates

62.9 – 121.7

0.6 – 4.2%

—

Option models

Volatilities

Correlations

13.5 – 118.1%
(0.70) – 0.99

—

Credit contracts

DCF/
Option models

Credit spreads
Recovery rates

0.0 – 7.5%

15.0 – 40.0%

—

Option models

Volatilities

Correlations

10.0 – 70.0%
0.33 – 0.90

—

Foreign exchange contracts

)

Option models

Volatilities

1.4 – 20.7%

—

DCF

Forward FX rates

2.7 – 12,484.0

—

Loans and receivables

DCF

Credit spreads

3.0%

3.0

Other assets

Non-trading debt securities

DCF

Credit spreads

0.2 – 2.5%

1.7

Other⁽³⁾

DCF

WACC

Growth rates

Yields

Liquidity discounts

6.8 – 6.8%
0.0 – 1.0%
7.6%

0.0 – 30.0%

6.8

0.9

7.6

8.0

Market multiples

EV/EBITDA ratios

PE ratios

Price/Book ratios

Liquidity discounts

6.9 – 12.5 x

7.7 – 44.4 x

0.0 – 5.6 x

25.0 – 30.0%

9.9

25.8

1.7

29.8

Liabilities:

Long-term borrowings

222

DCF

Volatilities

Correlations

13.5 – 118.1%

(0.77) – 0.99

—

December 31, 2013

Financial Instrument

Fair value
in billions of yen

Valuation
technique(s)

Significant unobservable inputs

Range of
valuation inputs⁽¹⁾

Weighted
Average⁽²⁾

Assets:

Trading assets and private equity investments

Equities

DCF

Yields

Liquidity discounts

7.6%

11.0 – 50.0%

7.6

35.3

DCM

Capitalization rates

6.7 – 8.0%

6.8

Private equity investments

Market multiples

EV/EBITDA ratios

Price/Embedded value ratios
Liquidity discounts

13.1 x

0.4 x

20.0 – 33.0%

13.1

0.4

30.4

Foreign government, agency and municipal securities

DCF

Credit spreads

0.0 – 5.8%

0.4

Bank and corporate debt securities and loans for trading purposes

DCF

Credit spreads

Recovery rates

0.0 – 26.7%

0.0 – 37.5%

5.3

34.6

Commercial mortgage-backed securities (“CMBS”)

DCF

Yields

Loss severities

1.4 – 21.5%

0.0%

6.0

0.0

Residential mortgage-backed securities (“RMBS”)

DCF

Yields

Prepayment rates

Default probabilities

Loss severities

0.3 – 8.0%

0.0 – 12.0%

3.5%

40.0 – 87.2%

3.9

1.1

3.5

40.2

Collateralized debt obligations (“CDO”) and other

DCF

Yields

Prepayment rates

Default probabilities

Loss severities

2.4 – 79.6%

0.0 – 20.0%

2.0 – 65.0%

30.0 – 100.0%

12.7

18.0

3.9

47.6

Investment trust funds and other

DCF

Credit spreads

Correlations

0.0 – 3.3%

0.50 – 0.71

0.3

0.61

Derivatives, net:

Equity contracts

Option models

Dividend yield

Volatilities

Correlations

0.0 – 9.6%

5.5 – 64.0%

(0.93) – 0.95

—

Interest rate contracts

(55

)

DCF/
Option models

Interest rates

0.8 – 4.8%

—

Option models

Volatilities

Correlations

10.2 – 28.6%

(0.95) – 1.00

—

Credit contracts

DCF/
Option models

Credit spreads

Recovery rates

0.1 – 23.4%

25.0 – 80.0%

—
—

Option models

Volatilities

Correlations

10.0 – 66.5%
0.25 – 0.92

—

Foreign exchange contracts

Option models

Volatilities

0.7 – 19.7%

—

Loans and receivables

DCF

Credit spreads

2.1 – 4.5%

4.4

Other assets

Non-trading debt securities

DCF

Credit spreads

0.2 – 2.5%

0.9

Other⁽³⁾

DCF

WACC

Growth rates

Yields

Liquidity discounts

6.4%

1.0%

7.6%
0.0 – 30.0%

6.4
1.0
7.6
11.9

%
%
%
%

Market multiples

EV/EBITDA ratios

PE ratios

Price/Book ratios

Liquidity discounts

3.6 – 8.3 x

9.6 – 60.1 x

0.0 – 5.3 x

30.0%

5.7

24.0

1.0

30.0

Liabilities:

Long-term borrowings

321

DCF

Volatilities

Correlations

10.2 – 31.7%

(0.73) – 1.00

—

(1)

Range information is provided in percentages, coefficients and multiples and represents the highest and lowest level significant unobservable valuation input used to value that type of financial instrument. A wide dispersion in the range does not necessarily reflect increased uncertainty or subjectivity in the valuation input and is typically just a consequence of the different characteristics of the financial instruments themselves.

(2)	Weighted average information for non-derivative instruments is calculated by weighting each valuation input by the fair value of the financial instrument.

(3)	Valuation technique(s) and unobservable inputs represent those equity securities reported within Other assets.

Qualitative discussion of the ranges of significant unobservable inputs

The following comments present qualitative discussion about the significant unobservable inputs used by Nomura for financial instruments classified in Level 3.

Derivatives—Equity contracts—The significant unobservable inputs are dividend yield, volatilities and correlations. The range of dividend yields varies as some companies do not pay any dividends, for example due to a lack of profits or as a policy during a growth period, and hence have a zero dividend yield while others may pay a high dividend for example to return money to investors. The range of volatilities is wide as the volatilities of shorter-dated equity derivatives are typically higher than those of longer-dated instruments. Correlations represent the relationships between one input and another (“pairs”) and can either be positive or negative amounts. The range of correlations moves from positive to negative because the movement of some pairs is very closely related in the same direction causing high positive correlations while others generally move in opposite directions causing high negative correlations with pairs that have differing relationships throughout the range.

Derivatives—Interest rate contracts—The significant unobservable inputs are forward FX rates, interest rates, volatilities and correlations. The wide range of forward FX rates is primarily due to long-dated exchange rates of different currencies against the Japanese Yen. The range of interest rates is due to interest rates in different countries/currencies being at different levels with some countries having extremely low levels and others being at levels that while still relatively low are less so. The range of volatilities is wide as the volatilities of shorter-dated interest rate derivatives are typically higher than those of longer-dated instruments. The range of correlations moves from positive to negative because the movement of some pairs is very closely related in the same direction causing high positive correlations while others generally move in opposite directions causing high negative correlations with pairs that have differing relationships through the range. Other than for volatilities where the majority of the inputs are away from the higher end of the range, the other significant unobservable inputs are spread across the relevant ranges.

Derivatives—Credit contracts—The significant unobservable inputs are credit spreads, recovery rates, volatilities and correlations. The range of credit spreads is relatively narrow with the low end of the range arising from exposure to underlying reference names with very limited risk of a default and the high end arising from exposure to underlying reference names with a much greater risk of default. The range of recovery rates varies mainly due to the seniority of the underlying exposure with senior exposures having a higher recovery than subordinated exposures. The range of volatilities is wide as the volatilities of shorter-dated credit contracts are typically higher than those of longer-dated instruments. The correlation range is positive since credit spread moves are generally in the same direction. High positive correlations are those for which the movement is closely related with the correlation falling as the relationship becomes less strong. Other than for volatilities where the majority of inputs are away from the higher end of the range, the other significant unobservable inputs are spread across the relevant ranges.

Derivatives—Foreign exchange contracts—The significant unobservable inputs are volatilities and forward FX rates. The range of volatilities is relatively low with the lower end coming from currencies that trade in narrow ranges versus the US dollar. The wide range of forward FX rates is primarily due to long-dated exchange rates of different currencies against the US dollar. All significant unobservable inputs are spread across the relevant ranges.

Long-term borrowings—The significant unobservable inputs are yields, prepayment rates, default probabilities, loss severities, volatilities and correlations. The range of loss severities is relatively wide due to the range in expected pay-off should the positions default. The range of volatilities is wide as the volatilities of shorter-dated instruments are typically higher than those in longer-dated instruments. The range of correlations moves from positive to negative because the movement of some pairs is very closely related in the same direction causing high positive correlations while others generally move in opposite directions causing high negative correlations with pairs that have differing relationships through the range. Other than for volatilities where the majority of inputs are away from the higher end of the range, the other significant unobservable inputs are spread across the relevant ranges.

Sensitivity of fair value to changes in unobservable inputs

For each class of financial instrument described in the above tables, changes in each of the significant unobservable inputs and assumptions used by Nomura will impact upon the determination of a fair value measurement for the financial instrument. The sensitivity of these Level 3 fair value measurements to changes in unobservable inputs and interrelationships between those inputs is described below:

•

Equities, Private equity investments and equity securities reported within Other assets—When using DCF valuation techniques to determine fair value, a significant increase (decrease) in yields, WACC or liquidity discount in isolation would result in a significantly lower (higher) fair value measurement. Conversely, a significant increase (decrease) in growth rate would result in a corresponding significantly higher (lower) fair value measurement. There is little interrelationship between these measures. When using market multiples to determine fair value, a significant increase (decrease) in the relevant multiples such as PE ratios, EV/EBITDA ratios, Price/Book ratios and Price/Embedded Value ratios in isolation would result in a higher (lower) fair value measurement. Conversely, a significant increase (decrease) in the liquidity discount applied to the holding in isolation would result in a significantly lower (higher) fair value measurement. Generally changes in assumptions around multiples result in a corresponding similar directional change in a fair value measurement, assuming earnings levels remain constant. When using DCM, a significant increase (decrease) in the capitalization rate would result in a significantly lower (higher) fair value measurement.

•

Japanese agency and municipal securities, Foreign government, agency and municipal securities, Bank and corporate debt securities and loans for trading purposes, Loans and receivables and Non-trading debt securities—Significant increases (decreases) in the credit spreads used in a DCF valuation technique would result in a significantly lower (higher) fair value measurement, while significant increases (decreases) in recovery rates would result in a significantly higher (lower) fair value measurement.

•

Commercial mortgage-backed securities (“CMBS”), Residential mortgage-backed securities (“RMBS”), Real estate-backed securities and Collateralized debt obligations (“CDO”) and other—Significant increases (decreases) in yields, prepayment rates, default probabilities and loss severities in isolation would result in a significantly lower (higher) fair value measurement. Generally, a change in default probabilities is accompanied by a directionally similar change in loss severities and a directionally opposite change in prepayment rates. When using DCM, a significant increase (decrease) in the capitalization rate would result in a significantly lower (higher) fair value measurement.

•

Investment trust funds and other—Significant increases (decreases) in credit spreads used in a DCF valuation technique would result in a significantly lower (higher) fair value measurement, while significant increases (decreases) in correlation would result in a significantly higher (lower) fair value measurement.

•

Derivatives—Where Nomura is long the underlying risk of a derivative, significant increases (decreases) in the underlying of the derivative, such as interest rates, credit spreads or forward FX rates in isolation or significant decreases (increases) in dividend yields would result in a significantly higher (lower) fair value measurement. Where Nomura is short the underlying risk of a derivative, the impact of these changes would have a converse effect on the fair value measurements reported by Nomura. Where Nomura is long optionality, recovery rates or correlation, significant increases (decreases) in volatilities, recovery rates or correlation will generally result in a significantly higher (lower) fair value measurement. Where Nomura is short optionality, recovery rates or correlation, the impact of these changes would have a converse effect on the fair value measurements.

•

Long-term borrowings—Significant increases (decreases) in yields, prepayment rates, default probabilities and loss severities in isolation would result in a significantly lower (higher) fair value measurement. Generally, a change in default probabilities is accompanied by a directionally similar change in the assumption used for loss severities and a directionally opposite change in prepayment rates. Where Nomura is long optionality or correlation, significant increases (decreases) in volatilities or correlation will generally result in a significantly higher (lower) fair value measurement. Where Nomura is short optionality or correlation, the impact of these changes would have a converse effect on the fair value measurements.

Movements in Level 3 financial instruments

The following tables present gains and losses as well as increases and decreases of financial instruments measured at fair value on a recurring basis which Nomura classified in Level 3 for the nine and three months ended December 31, 2012 and 2013. Financial instruments classified in Level 3 are often hedged with instruments within Level 1 or Level 2 of the fair value hierarchy. The gains or losses presented below do not reflect the offsetting gains or losses for these hedging instruments. Level 3 financial instruments are also measured using both observable and unobservable inputs. Fair value changes presented below, therefore, reflect realized and unrealized gains and losses resulting from movements in both observable and unobservable parameters.

For the three months ended December 31, 2013, gains and losses related to Level 3 assets did not have a material impact on Nomura’s liquidity and capital resources management.


	Billions of yen
	Nine months ended December 31, 2012
	Beginning balance as of nine months ended December 31, 2012			Total gains (losses) recognized in revenue⁽¹⁾			Total gains (losses) recognized in other comprehensive income			Purchases / issues⁽²⁾			Sales / redemptions⁽²⁾			Settlements			Foreign exchange movements			Transfers into Level 3⁽³⁾			Transfers out of Level 3⁽³⁾			Balance as of nine months ended December 31, 2012
Assets:
Trading assets and private equity investments
Equities	¥	125		¥	1		¥	—		¥	34		¥	(16	)	¥	—		¥	1		¥	6		¥	(22	)	¥	129
Private equity investments		202			7			—			3			(131	)		—			9			—			—			90
Japanese agency and municipal securities		10			0			—			1			(11	)		—			—			0			(0	)		0
Foreign government, agency and municipal securities		37			23			—			512			(517	)		—			0			49			(17	)		87
Bank and corporate debt securities and loans for trading purposes		62			4			—			208			(253	)		—			4			58			(32	)		51
Commercial mortgage-backed securities (“CMBS”)		8			2			—			6			(14	)		—			1			4			(5	)		2
Residential mortgage-backed securities (“RMBS”)		5			0			—			19			(19	)		—			0			2			(1	)		6
Real estate-backed securities		91			1			—			1			(19	)		—			(0	)		—			—			74
Collateralized debt obligations (“CDO”) and other		20			(1	)		—			8			(15	)		—			0			2			(5	)		9
Investment trust funds and other		9			1			—			2			(1	)		—			0			0			(0	)		11

Total trading assets and private equity investments		569			38			—			794			(996	)		—			15			121			(82	)		459

Derivatives, net⁽⁴⁾
Equity contracts		14			(10	)		—			—			—			2			1			(3	)		9			13
Interest rate contracts		(39	)		(16	)		—			—			—			20			1			(3	)		(3	)		(40	)
Credit contracts		(11	)		(19	)		—			—			—			46			1			1			19			37
Foreign exchange contracts		18			2			—			—			—			(2	)		(0	)		(6	)		(13	)		(1	)
Commodity contracts		(0	)		0			—			—			—			(0	)		(0	)		0			(0	)		(0	)

Total derivatives, net		(18	)		(43	)		—			—			—			66			3			(11	)		12			9

Subtotal	¥	551		¥	(5	)	¥	—		¥	794		¥	(996	)	¥	66		¥	18		¥	110		¥	(70	)	¥	468

Loans and receivables		11			(0	)		—			0			(1	)		—			0			—			(2	)		8
Other assets
Non-trading debt securities		6			(0	)		0			0			(2	)		—			0			—			—			4
Other⁽⁵⁾		72			12			(0	)		0			(15	)		—			0			0			(0	)		69

Total	¥	640		¥	7		¥	(0	)	¥	794		¥	(1,014	)	¥	66		¥	18		¥	110		¥	(72	)	¥	549

Liabilities:
Trading liabilities
Equities	¥	0		¥	0		¥	—		¥	—		¥	(0	)	¥	—		¥	0		¥	0		¥	—		¥	0
Bank and corporate debt securities		1			(0	)		—			0			(1	)		—			0			—			—			0

Total trading liabilities	¥	1		¥	(0	)	¥	—		¥	0		¥	(1	)	¥	—		¥	0		¥	0		¥	—		¥	0

Short-term borrowings		0			0			—			2			(0	)		—			(0	)		1			(2	)		1
Payables and deposits		(0	)		(0	)		—			(0	)		(0	)		—			—			—			—			(0	)
Long-term borrowings		(13	)		(77	)		—			36			(52	)		—			1			94			(50	)		93
Other liabilities		—			0			—			0			(0	)		—			0			—			—			0

Total	¥	(12	)	¥	(77	)	¥	—		¥	38		¥	(53	)	¥	—		¥	1		¥	95		¥	(52	)	¥	94


	Billions of yen
	Nine months ended December 31, 2013
	Beginning balance as of nine months ended December 31, 2013			Total gains (losses) recognized in revenue⁽¹⁾			Total gains (losses) recognized in other comprehensive income			Purchases / issues⁽²⁾			Sales / redemptions⁽²⁾			Settlements		Foreign exchange movements			Transfers into Level 3⁽³⁾			Transfers out of Level 3⁽³⁾			Balance as of nine months ended December 31, 2013
Assets:
Trading assets and private equity investments
Equities	¥	129		¥	5		¥	—		¥	11		¥	(59	)	¥	—	¥	7		¥	6		¥	(1	)	¥	98
Private equity investments		87			(1	)		—			1			(11	)		—		7			—			(40	)		43
Japanese agency and municipal securities		0			—			—			—			—			—		—			—			(0	)		—
Foreign government, agency and municipal securities		91			16			—			417			(437	)		—		—			8			(64	)		31
Bank and corporate debt securities and loans for trading purposes		69			2			—			152			(116	)		—		4			19			(43	)		87
Commercial mortgage-backed securities (“CMBS”)		6			(0	)		—			7			(7	)		—		0			2			(1	)		7
Residential mortgage-backed securities (“RMBS”)		4			(0	)		—			2			(2	)		—		0			1			(2	)		3
Real estate-backed securities		68			1			—			0			(69	)		—		0			—			—			0
Collateralized debt obligations (“CDO”) and other		12			(1	)		—			20			(15	)		—		1			2			(3	)		16
Investment trust funds and other		13			1			—			18			(6	)		—		0			—			(1	)		25

Total trading assets and private equity investments		479			23			—			628			(722	)		—		19			38			(155	)		310

Derivatives, net⁽⁴⁾
Equity contracts		5			(12	)		—			—			—			8		2			6			9			18
Interest rate contracts		(54	)		(18	)		—			—			—			14		(0	)		(2	)		5			(55	)
Credit contracts		25			(2	)		—			—			—			13		3			0			1			40
Foreign exchange contracts		(3	)		(5	)		—			—			—			13		(0	)		(1	)		(0	)		4
Commodity contracts		(0	)		0			—			—			—			0		(0	)		0			—			0

Total derivatives, net		(27	)		(37	)		—			—			—			48		5			3			15			7

Subtotal	¥	452		¥	(14	)	¥	—		¥	628		¥	(722	)	¥	48	¥	24		¥	41		¥	(140	)	¥	317

Loans and receivables		3			(0	)		—			1			(2	)		—		1			8			(0	)		11
Other assets
Non-trading debt securities		4			(0	)		(0	)		—			(0	)		—		0			—			—			4
Other⁽⁵⁾		60			3			(0	)		2			(5	)		—		0			—			(2	)		58

Total	¥	519		¥	(11	)	¥	(0	)	¥	631		¥	(729	)	¥	48	¥	25		¥	49		¥	(142	)	¥	390

Liabilities:
Trading liabilities
Equities	¥	0		¥	(0	)	¥	—		¥	0		¥	(0	)	¥	—	¥	0		¥	0		¥	(0	)	¥	0
Bank and corporate debt securities		0			0			—			0			(0	)		—		0			0			(0	)		0

Total trading liabilities	¥	0		¥	(0	)	¥	—		¥	0		¥	(0	)	¥	—	¥	0		¥	0		¥	(0	)	¥	0

Short-term borrowings		4			(0	)		—			2			(3	)		—		—			0			(2	)		1
Payables and deposits		1			(0	)		—			(0	)		(0	)		—		—			—			(0	)		1
Long-term borrowings		222			(7	)		—			313			(202	)		—		3			38			(60	)		321
Other liabilities		0			—			—			1			(0	)		—		0			—			—			1

Total	¥	227		¥	(7	)	¥	—		¥	316		¥	(205	)	¥	—	¥	3		¥	38		¥	(62	)	¥	324


	Billions of yen
	Three months ended December 31, 2012
	Beginning balance as of three months ended December 31, 2012			Total gains (losses) recognized in revenue⁽¹⁾			Total gains (losses) recognized in other comprehensive income			Purchases / issues⁽²⁾			Sales / redemptions⁽²⁾			Settlements			Foreign exchange movements			Transfers into Level 3⁽³⁾			Transfers out of Level 3⁽³⁾			Balance as of three months ended December 31, 2012
Assets:
Trading assets and private equity investments
Equities	¥	121		¥	1		¥	—		¥	25		¥	(6	)	¥	—		¥	4		¥	1		¥	(17	)	¥	129
Private equity investments		188			13			—			1			(128	)		—			16			—			—			90
Japanese agency and municipal securities		—			0						0			(0	)		—			—			0			—			0
Foreign government, agency and municipal securities		49			16			—			203			(196	)		—			0			26			(11	)		87
Bank and corporate debt securities and loans for trading purposes		90			3			—			52			(116	)		—			6			19			(3	)		51
Commercial mortgage-backed securities (“CMBS”)		11			0			—			1			(11	)		—			1			—			—			2
Residential mortgage-backed securities (“RMBS”)		5			(0	)		—			1			(1	)		—			1			0			—			6
Real estate-backed securities		77			1			—			1			(5	)		—			0			—			—			74
Collateralized debt obligations (“CDO”) and other		11			(0	)		—			3			(5	)		—			1			—			(1	)		9
Investment trust funds and other		10			1			—			0			(0	)		—			0			—			(0	)		11

Total trading assets and private equity investments		562			35			—			287			(468	)		—			29			46			(32	)		459

Derivatives, net⁽⁴⁾
Equity contracts		15			(9	)		—			—			—			(0	)		2			2			3			13
Interest rate contracts		(6	)		(4	)		—			—			—			8			4			(38	)		(4	)		(40	)
Credit contracts		(2	)		(12	)		—			—			—			37			1			0			13			37
Foreign exchange contracts		11			2			—			—			—			(4	)		0			(11	)		1			(1	)
Commodity contracts		(0	)		0			—			—			—			0			(0	)		—			(0	)		(0	)

Total derivatives, net		18			(23	)		—			—			—			41			7			(47	)		13			9

Subtotal	¥	580		¥	12		¥	—		¥	287		¥	(468	)	¥	41		¥	36		¥	(1	)	¥	(19	)	¥	468

Loans and receivables		8			(0	)		—			0			(1	)		—			1			—			—			8
Other assets
Non-trading debt securities		4			(0	)		0			0			(0	)		—			0			—			—			4
Other⁽⁵⁾		81			(4	)		(0	)		0			(8	)		—			0			—			(0	)		69

Total	¥	673		¥	8		¥	(0	)	¥	287		¥	(477	)	¥	41		¥	37		¥	(1	)	¥	(19	)	¥	549

Liabilities:
Trading liabilities
Equities	¥	0		¥	0		¥	—		¥	—		¥	(0	)	¥	—		¥	0		¥	—		¥	—		¥	0
Bank and corporate debt securities		0			(0	)		—			0			—			—			0			—			—			0

Total trading liabilities	¥	0		¥	(0	)	¥	—		¥	0		¥	(0	)	¥	—		¥	0		¥	—		¥	—		¥	0

Short-term borrowings		1			(0	)		—			0			(0	)		—			—			0			(0	)		1
Payables and deposits		(0	)		(0	)		—			(0	)		—			—			—			—			—			(0	)
Long-term borrowings		(14	)		(91	)		—			3			(6	)		—			4			52			(37	)		93
Other liabilities		0			0			—			0			0			—			0			—			—			0

Total	¥	(13	)	¥	(91	)	¥	—		¥	3		¥	(6	)	¥	—		¥	4		¥	52		¥	(37	)	¥	94


	Billions of yen
	Three months ended December 31, 2013
	Beginning balance as of three months ended December 31, 2013			Total gains (losses) recognized in revenue⁽¹⁾			Total gains (losses) recognized in other comprehensive income			Purchases / issues⁽²⁾		Sales / redemptions⁽²⁾			Settlements			Foreign exchange movements			Transfers into Level 3⁽³⁾		Transfers out of Level 3⁽³⁾			Balance as of three months ended December 31, 2013
Assets:
Trading assets and private equity investments
Equities	¥	102		¥	0		¥	—		¥	3	¥	(13	)	¥	—		¥	4		¥	3	¥	(1	)	¥	98
Private equity investments		84			(0	)		—			0		(4	)		—			3			—		(40	)		43
Foreign government, agency and municipal securities		27			7			—			112		(115	)		—			—			—		—			31
Bank and corporate debt securities and loans for trading purposes		101			2			—			35		(39	)		—			4			6		(22	)		87
Commercial mortgage-backed securities (“CMBS”)		7			0			—			3		(2	)		—			0			0		(1	)		7
Residential mortgage-backed securities (“RMBS”)		3			(0	)		—			1		(1	)		—			—			0		(0	)		3
Real estate-backed securities		5			0			—			0		(5	)		—			0			—		—			0
Collateralized debt obligations (“CDO”) and other		13			(0	)		—			11		(6	)		—			1			0		(3	)		16
Investment trust funds and other		18			0			—			8		(1	)		—			0			—		—			25

Total trading assets and private equity investments		360			9			—			173		(186	)		—			12			9		(67	)		310

Derivatives, net⁽⁴⁾
Equity contracts		14			(5	)		—			—		—			(9	)		2			1		15			18
Interest rate contracts		(53	)		(1	)		—			—		—			(3	)		0			0		2			(55	)
Credit contracts		29			(0	)		—			—		—			7			2			1		1			40
Foreign exchange contracts		0			(1	)		—			—		—			5			(0	)		—		(0	)		4
Commodity contracts		0			0			—			—		—			(0	)		0			—		—			0

Total derivatives, net		(10	)		(7	)		—			—		—			(0	)		4			2		18			7

Subtotal	¥	350		¥	2		¥	—		¥	173	¥	(186	)	¥	(0	)	¥	16		¥	11	¥	(49	)	¥	317

Loans and receivables		2			(0	)		—			—		(0	)		—			1			8		(0	)		11
Other assets
Non-trading debt securities		4			(0	)		(0	)		—		(0	)		—			(0	)		—		—			4
Other⁽⁵⁾		60			0			(0	)		1		(1	)		—			0			—		(2	)		58

Total	¥	416		¥	2		¥	(0	)	¥	174	¥	(187	)	¥	(0	)	¥	17		¥	19	¥	(51	)	¥	390

Liabilities:
Trading liabilities
Equities	¥	0		¥	0		¥	—		¥	0	¥	(0	)	¥	—		¥	(0	)	¥	0	¥	(0	)	¥	0
Bank and corporate debt securities		0			0			—			0		(0	)		—			0			—		(0	)		0

Total trading liabilities	¥	0		¥	0		¥	—		¥	0	¥	(0	)	¥	—		¥	0		¥	0	¥	(0	)	¥	0

Short-term borrowings		0			(0	)		—			1		(0	)		—			—			0		(0	)		1
Payables and deposits		1			0			—			—		—			—			—			—		—			1
Long-term borrowings		213			(50	)		—			63		(23	)		—			2			33		(17	)		321
Other liabilities		0			—			—			1		(0	)		—			0			—		—			1

Total	¥	214		¥	(50	)	¥	—		¥	65	¥	(23	)	¥	—		¥	2		¥	33	¥	(17	)	¥	324

(1)

Includes gains and losses reported primarily within Net gain on trading, Gain (loss) on private equity investments, and also within Gain (loss) on investments in equity securities, Revenue—Other and Non-interest expenses—Other, Interest and dividends and Interest expense in the consolidated statements of income.

(2)	Amounts reported in Purchases / issues include increases in trading liabilities while Sales / redemptions include decreases in trading liabilities.

(3)

If financial instruments move from Level 3 to another Level or move from another Level to Level 3, the amount reported in Transfers into Level 3 and Transfers out of Level 3 are the fair value as of the beginning of the quarter during which the movement occurs. Therefore if financial instruments move from another Level to Level 3 all gains/ (losses) during the quarter are included in the table and if financial instruments move from Level 3 to another Level all gains/ (losses) during the quarter are excluded from the table.

(4)

Each derivative classification includes derivatives referencing multiple risk components. For example, interest rate contracts include complex derivatives referencing interest rate risk as well as foreign exchange risk or other factors such as prepayments rates. Credit contracts include credit default swaps as well as derivatives referencing corporate and government debt securities.

(5)	Includes the impact of the refined fair value measurements of certain investments in unlisted equity securities.

Unrealized gains and losses recognized for Level 3 financial instruments

The following tables present the amounts of unrealized gains (losses) for the nine and three months ended December 31, 2012 and 2013, relating to those financial instruments which Nomura classified in Level 3 within the fair value hierarchy and that were still held by Nomura at the relevant consolidated balance sheet date.


	Billions of yen
	Nine months ended December 31
	2012			2013
	Unrealized gains / (losses)⁽¹⁾
Assets:
Trading assets and private equity investments
Equities	¥	(0)		¥	2
Private equity investments		(12	)		(5	)
Japanese agency and municipal securities		0			—
Foreign government, agency and municipal securities		2			(1	)
Bank and corporate debt securities and loans for trading purposes		0			(1	)
Commercial mortgage-backed securities (“CMBS”)		0			1
Residential mortgage-backed securities (“RMBS”)		0			0
Real estate-backed securities		0			(0	)
Collateralized debt obligations (“CDO”) and other		(0	)		(1	)
Investment trust funds and other		1			1

Total trading assets and private equity investments		(9	)		(4	)

Derivatives, net⁽²⁾
Equity contracts		3			(8	)
Interest rate contracts		(28	)		(22	)
Credit contracts		(8	)		(6	)
Foreign exchange contracts		(2	)		(5	)
Commodity contracts		0			(0	)

Total derivatives, net		(35	)		(41	)

Subtotal	¥	(44	)	¥	(45	)

Loans and receivables		(0	)		(0	)
Other assets
Non-trading debt securities		—			(0	)
Other⁽³⁾		10			2

Total	¥	(34	)	¥	(43	)

Liabilities:
Trading liabilities
Equities	¥	0		¥	(0	)
Bank and corporate debt securities		(0	)		(0	)

Total trading liabilities	¥	(0	)	¥	(0	)

Short-term borrowings		(0	)		0
Payables and deposits		(0	)		(0	)
Long-term borrowings		(93	)		(15	)

Total	¥	(93	)	¥	(15	)


	Billions of yen
	Three months ended December 31
	2012			2013
	Unrealized gains / (losses)⁽¹⁾
Assets:
Trading assets and private equity investments
Equities	¥	(0	)	¥	(1	)
Private equity investments		(4	)		(4	)
Japanese agency and municipal securities		0			—
Foreign government, agency and municipal securities		2			0
Bank and corporate debt securities and loans for trading purposes		0			(0	)
Commercial mortgage-backed securities (“CMBS”)		0			0
Residential mortgage-backed securities (“RMBS”)		(0	)		(0	)
Real estate-backed securities		1			—
Collateralized debt obligations (“CDO”) and other		0			0
Investment trust funds and other		1			0

Total trading assets and private equity investments		0			(5	)

Derivatives, net⁽²⁾
Equity contracts		(7	)		2
Interest rate contracts		(5	)		0
Credit contracts		(10	)		(4	)
Foreign exchange contracts		3			(1	)
Commodity contracts		0			(0	)

Total derivatives, net		(19	)		(3	)

Subtotal	¥	(19	)	¥	(8	)

Loans and receivables		(0	)		(0	)
Other assets
Non-trading debt securities		—			(0	)
Other⁽³⁾		(5	)		(0	)

Total	¥	(24	)	¥	(8	)

Liabilities:
Trading liabilities
Equities	¥	0		¥	0
Bank and corporate debt securities		(0	)		0

Total trading liabilities	¥	(0	)	¥	0

Short-term borrowings		(0	)		(0	)
Payables and deposits		(0	)		0
Long-term borrowings		(93	)		(49	)

Total	¥	(93	)	¥	(49	)

(1)

(2)

(3)	Includes the impact of the refined fair value measurements of certain investments in unlisted equity securities.

Transfers between levels of the fair value hierarchy

Nomura assumes that all transfers of financial instruments from one level to another level within the fair value hierarchy occur at the beginning of the relevant quarter in which the transfer takes place. Amounts reported below therefore represent the fair value of the financial instruments at the beginning of the relevant quarter when the transfer was made.

Transfers between Level 1 and Level 2

For the nine months ended December 31, 2012, a total of ¥456 billion of financial assets (excluding derivative assets) were transferred from Level 1 to Level 2. This comprised primarily ¥249 billion of debt securities reported within Other assets—Non-trading debt securities which were transferred because the observable markets in which these instruments are traded became inactive. This also comprised ¥197 billion of equities reported within Trading assets and private equity investments—Equities which were transferred because the observable markets in which these instruments are traded became inactive. During the same period, a total of ¥43 billion of financial liabilities (excluding derivative liabilities) were transferred from Level 1 to Level 2. This also comprised primarily ¥40 billion of short sales of equities reported within Trading liabilities which were transferred because the observable markets in which these instruments were traded became inactive.

For the nine months ended December 31, 2013, a total of ¥431 billion of financial assets (excluding derivative assets) were transferred from Level 1 to Level 2. This comprised primarily ¥426 billion of equities reported within Trading assets and private equity investments—Equities which were transferred because the observable markets in which these instruments are traded became inactive. During the same period, a total of ¥27 billion of financial liabilities (excluding derivative liabilities) were transferred from Level 1 to Level 2. This also comprised primarily ¥26 billion of short sales of equities reported within Trading liabilities which were transferred because the observable markets in which these instruments were traded became inactive.

For the three months ended December 31, 2012, a total of ¥175 billion of financial assets (excluding derivative assets) were transferred from Level 1 to Level 2. This comprised primarily ¥175 billion of equities reported within Trading assets and private equity investments—Equities which were transferred because the observable markets in which these instruments are traded became inactive. During the same period, a total of ¥33 billion of financial liabilities (excluding derivative liabilities) were transferred from Level 1 to Level 2. This also comprised primarily ¥30 billion of short sales of equities reported within Trading liabilities which were transferred because the observable markets in which these instruments were traded became inactive.

For the three months ended December 31, 2013, a total of ¥4 billion of financial assets (excluding derivative assets) were transferred from Level 1 to Level 2. This comprised primarily ¥4 billion of equities reported within Trading assets and private equity investments—Equities which were transferred because the observable markets in which these instruments are traded became inactive. During the same period, a total of ¥2 billion of financial liabilities (excluding derivative liabilities) were transferred from Level 1 to Level 2. This also comprised primarily ¥2 billion of short sales of equities reported within Trading liabilities which were transferred because the observable markets in which these instruments were traded became inactive.

For the nine months ended December 31, 2012, a total of ¥336 billion of financial assets (excluding derivative assets) were transferred from Level 2 to Level 1. This comprised primarily ¥324 billion of equities reported within Trading assets and private equity investments—Equities which were transferred because the observable markets in which these instruments are traded became active. During the same period, a total of ¥374 billion of financial liabilities (excluding derivative liabilities) were transferred from Level 2 to Level 1. This also comprised primarily ¥372 billion of short sales of equities reported within Trading liabilities which were transferred because the observable markets in which these instruments were traded became active.

For the nine months ended December 31, 2013, a total of ¥824 billion of financial assets (excluding derivative assets) were transferred from Level 2 to Level 1. This comprised primarily ¥807 billion of equities reported within Trading assets and private equity investments—Equities which were transferred because the observable market in which these instruments are traded became active. This also comprised ¥13 billion of Investment trust funds and other which were transferred because the observable markets in which these instruments are traded became active. During the same period, a total of ¥86 billion of financial liabilities (excluding derivative liabilities) were transferred from Level 2 to Level 1. This also comprised primarily ¥84 billion of short sales of equities reported within Trading liabilities which were transferred because the observable markets in which these instruments were traded became active.

For the three months ended December 31, 2012, a total of ¥8 billion of financial assets (excluding derivative assets) were transferred from Level 2 to Level 1. This was because the observable markets in which these instruments are traded became active. During the same period, a total of ¥3 billion of financial liabilities (excluding derivative liabilities) were transferred from Level 2 to Level 1.

For the three months ended December 31, 2013, a total of ¥724 billion of financial assets (excluding derivative assets) were transferred from Level 2 to Level 1. This comprised primarily ¥713 billion of equities reported within Trading assets and private equity investments—Equities which were transferred because the observable markets in which these instruments are traded became active. This also comprised ¥7 billion of Investment trust funds and other which were transferred because the observable markets in which these instruments are traded became active. During the same period, a total of ¥63 billion of financial liabilities (excluding derivative liabilities) were transferred from Level 2 to Level 1. This also comprised primarily ¥62 billion of short sales of equities reported within Trading liabilities which were transferred because the observable markets in which these instruments were traded became active.

Transfers out of Level 3

For the nine months ended December 31, 2012, a total of ¥84 billion of financial assets (excluding derivative assets) were transferred out of Level 3. This comprised primarily ¥32 billion of Bank and corporate debt securities and loans for trading purposes, principally debt securities and loans, which were transferred because certain credit spreads became observable. This also comprised primarily ¥22 billion of Equities which were transferred because certain credit spreads and liquidity discounts became observable, ¥17 billion of Foreign government, agency and municipal securities were transferred because certain credit spreads became observable, ¥5 billion of CMBS which were transferred because certain yields, prepayment rates, default probabilities and loss severities became observable and ¥5 billion of CDO and other which were transferred because certain yields, prepayment rates, default probabilities and loss severities became observable. During the same period, a total of ¥52 billion of financial liabilities (excluding derivative liabilities) were transferred out of Level 3. This comprised primarily ¥47 billion of Long-term borrowings, principally structured notes, which were transferred because certain volatility and correlation valuation inputs became observable.

For the nine months ended December 31, 2012, a total of ¥12 billion of net derivative liabilities were transferred out of Level 3. This comprised primarily ¥19 billion of net credit derivative liabilities which were transferred because certain credit spread, recovery rate, volatility and correlation valuation inputs became observable, ¥13 billion of net foreign exchange derivative assets which were transferred because certain volatility and forward FX rate valuation inputs became observable and ¥9 billion of net equity derivative liabilities which were transferred because certain dividend yield, volatility and correlation valuation inputs became observable.

For the nine months ended December 31, 2013, a total of ¥157 billion of financial assets (excluding derivative assets) were transferred out of Level 3. This comprised primarily ¥43 billion of Bank and corporate debt securities and loans for trading purposes, principally debt securities and loans, which were transferred because certain credit spreads and recovery rates became observable. This also comprised primarily ¥40 billion of Private equity investments which were transferred because the trading in observable markets was started, and ¥64 billion of Foreign government, agency and municipal securities which were transferred because certain credit spreads became observable. During the same period, a total of ¥62 billion of financial liabilities (excluding derivative liabilities) were transferred out of Level 3. This comprised primarily ¥60 billion of Long term borrowings, principally structured notes, which were transferred because certain yields, prepayment rates, default probabilities, loss severities, volatility and correlation valuation inputs became observable.

For the nine months ended December 31, 2013, a total of ¥15 billion of net derivative liabilities were also transferred out of Level 3. This comprised primarily ¥9 billion of net equity derivative liabilities which were transferred because certain dividend yields, volatility and correlation valuation inputs became observable, and ¥5 billion of net interest rate derivative liabilities which were transferred because certain interest rate, volatility and correlation valuation inputs became observable.

For the three months ended December 31, 2012, a total of ¥32 billion of financial assets (excluding derivative assets) were transferred out of Level 3. This comprised primarily ¥17 billion of Equities which were transferred because certain credit spreads and liquidity discounts became observable and ¥11 billion of Foreign government, agency and municipal securities which were transferred because certain credit spreads became observable. During the same period, a total of ¥37 billion of financial liabilities (excluding derivative liabilities) were transferred out of Level 3. This comprised primarily ¥37 billion of Long-term borrowings, principally structured notes, which were transferred because certain volatility and correlation valuation inputs became observable.

For the three months ended December 31, 2012, a total of ¥13 billion of net derivative liabilities were also transferred out of Level 3. This comprised primarily ¥13 billion of net credit derivative liabilities which were transferred because certain credit spread, recovery rate, volatility and correlation valuation inputs became observable.

For the three months ended December 31, 2013, a total of ¥69 billion of financial assets (excluding derivative assets) were transferred out of Level 3. This comprised primarily ¥22 billion of Bank and corporate debt securities and loans for trading purposes, principally loans, which were transferred because certain credit spreads and recovery rates became observable. This also comprised primarily ¥40 billion of Private equity investments which were transferred because the trading in observable markets was started. During the same period, a total of ¥17 billion of financial liabilities (excluding derivative liabilities) were transferred out of Level 3. This comprised primarily ¥17 billion of Long term borrowings, principally structured notes, which were transferred because certain volatility and correlation valuation inputs became observable.

For the three months ended December 31, 2013, a total of ¥18 billion of net derivative liabilities were also transferred out of Level 3. This comprised primarily ¥15 billion of net equity derivative liabilities which were transferred because certain dividend yield, volatility and correlation valuation inputs became observable.

Transfers into Level 3

For the nine months ended December 31, 2012, a total of ¥121 billion of financial assets (excluding derivative assets) were transferred into Level 3. This comprised primarily ¥58 billion of Bank and corporate debt securities and loans for trading purposes, principally debt securities and loans, which were transferred because certain credit spreads became unobservable. This also comprised primarily ¥49 billion of Foreign government, agency and municipal securities which were transferred because certain credit spreads became unobservable. The amount of gains and losses on these transfers reported in Bank and corporate debt securities and loans for trading purposes which were recognized in the quarter when the transfers into Level 3 occurred was not significant, and gains on the Foreign government, agency and municipal securities which were recognized in the quarter when the transfers into Level 3 occurred were ¥7 billion. During the same period, a total of ¥95 billion of financial liabilities (excluding derivative liabilities) were transferred into Level 3. This comprised primarily ¥91 billion of Long-term borrowings, principally structured notes, which were transferred because certain volatility and correlation valuation inputs became unobservable. Losses on these transfers reported in Long-term borrowings which were recognized in the quarter when the transfers into Level 3 occurred were ¥6 billion.

For the nine months ended December 31, 2012, a total of ¥11 billion of net derivative liabilities were also transferred into Level 3. This comprised ¥6 billion of net foreign exchange derivative liabilities which were transferred because certain volatility and forward FX rate valuation inputs became unobservable. The amount of gains and losses on the foreign exchange contracts which were recognized in the quarter when the transfers into Level 3 occurred was not significant.

For the nine months ended December 31, 2013, a total of ¥46 billion of financial assets (excluding derivative assets) were transferred into Level 3. This comprised primarily ¥6 billion of Equities which were transferred because certain yields and liquidity discounts became unobservable, and ¥8 billion of Foreign government, agency and municipal securities which were transferred because certain credit spreads became unobservable. This also comprised primarily ¥19 billion of Bank and corporate debt securities and loans for trading purposes, principally loans, which were transferred because certain credit spreads became unobservable. The amount of gains and losses on these transfers reported in Equities, Foreign government, agency and municipal securities and Bank and corporate debt securities and loans for trading purposes which were recognized in the quarter when the transfers into Level 3 occurred was not significant. During the same period, a total of ¥38 billion of financial liabilities (excluding derivative liabilities) were transferred into Level 3. This comprised primarily ¥36 billion of Long-term borrowings, principally structured notes, which were transferred because certain volatility and correlation valuation inputs became unobservable. The amount of gains and losses on these transfers which were recognized in the quarter when the transfers into Level 3 occurred was not significant.

For the nine months ended December 31, 2013, a total of ¥3 billion of net derivative assets were also transferred into Level 3. This comprised ¥6 billion of net equity derivative assets which were transferred because certain dividend yields, volatility and correlation valuation inputs became unobservable. Losses on these equity contracts and interest rate contracts which were recognized in the quarter when the transfers into Level 3 occurred were ¥6 billion and ¥7 billion, respectively.

For the three months ended December 31, 2012, a total of ¥46 billion of financial assets (excluding derivative assets) were transferred into Level 3. This comprised primarily ¥26 billion of Foreign government, agency and municipal securities which were transferred because certain credit spreads became unobservable, and ¥19 billion of Bank and corporate debt securities and loans for trading purposes, principally debt securities and loans, which were transferred because certain credit spreads became unobservable. Gains on the Foreign government, agency and municipal securities which were recognized in the quarter when the transfers into Level 3 occurred were ¥6 billion, and the gains and losses on these transfer reported in Bank and corporate debt securities and loans for trading purposes which were recognized in the quarter when the transfers into Level 3 occurred was not significant. During the same period, a total of ¥52 billion of financial liabilities (excluding derivative liabilities) were transferred into Level 3. This comprised primarily ¥52 billion of Long-term borrowings, principally structured notes, which were transferred because certain volatility and correlation valuation inputs became unobservable. Losses on these transfers reported in Long-term borrowings which were recognized in the quarter when the transfers into Level 3 occurred were ¥7 billion.

For the three months ended December 31, 2012, a total of ¥47 billion of net derivative liabilities were also transferred into Level 3. This comprised ¥38 billion of net interest rate derivative liabilities which were transferred because certain forward FX rate, interest rate, volatility and correlation valuation inputs became unobservable and ¥11 billion of net foreign exchange derivative liabilities which were transferred because certain volatility and forward FX rate valuation inputs became unobservable. The amount of gains and losses on the interest rate contracts and foreign exchange contracts which were recognized in the quarter when the transfers into Level 3 occurred were not significant.

For the three months ended December 31, 2013, a total of ¥17 billion of financial assets (excluding derivative assets) were transferred into Level 3. This comprised primarily ¥6 billion of Bank and corporate debt securities and loans for trading purposes, principally loans, which were transferred because certain credit spreads and recovery rates became unobservable. This also comprised primarily ¥8 billion of Loans and receivables which were transferred because certain credit spreads became unobservable. The amount of gains and losses on these transfers reported in Bank and corporate debt securities and loans for trading purposes and Loans and receivables which were recognized in the quarter when the transfers into Level 3 occurred were not significant. During the same period, a total of ¥33 billion of financial liabilities (excluding derivative liabilities) were transferred into Level 3. This comprised primarily ¥33 billion of Long-term borrowings, principally structured notes, which were transferred because certain volatility and correlation valuation inputs became unobservable. The amount of gains and losses on these transfers which were recognized in the quarter when the transfers into Level 3 occurred was not significant.

For the three months ended December 31, 2013, the total amount of net derivative contracts which were also transferred into Level 3 and the amount of gains and losses for which were recognized in the quarter when the transfers into Level 3 occurred were not significant.

Investments in investment funds that calculate NAV per share

In the normal course of business, Nomura invests in non-consolidated funds which meet the definition of investment companies or are similar in nature and which do not have readily determinable fair values. For certain of these investments, Nomura uses NAV per share as the basis for valuation as a practical expedient. Some of these investments are redeemable at different amounts from NAV per share.

The following tables present information on these investments where NAV per share is calculated or disclosed as of March 31, 2013 and December 31, 2013. Investments are presented by major category relevant to the nature of Nomura’s business and risks.


	Billions of yen
	March 31, 2013
	Fair value⁽¹⁾		Unfunded commitments⁽²⁾		Redemption frequency (if currently eligible)⁽³⁾	Redemption notice period⁽⁴⁾
Hedge funds	¥	68	¥	16	Monthly	Same day-95 days
Venture capital funds		4		1	—	—
Private equity funds		63		7	Quarterly	30 days
Real estate funds		3		—	—	—

Total	¥	138	¥	24


	Billions of yen
	December 31, 2013
	Fair value⁽¹⁾		Unfunded commitments⁽²⁾		Redemption frequency (if currently eligible)⁽³⁾	Redemption notice period⁽⁴⁾
Hedge funds	¥	66	¥	6	Monthly	Same day-95 days
Venture capital funds		4		1	—	—
Private equity funds		43		14	Quarterly	30 days
Real estate funds		3		—	—	—

Total	¥	116	¥	21

(1)	Fair value generally determined using NAV per share as a practical expedient.

(2)	The contractual amount of any unfunded commitments Nomura is required to make to the entities in which the investment is held.

(3)	The range in frequency with which Nomura can redeem investments.

(4)	The range in notice period required to be provided before redemption is possible.

Hedge funds:

These investments include funds of funds that invest in multiple asset classes. Nomura has developed the business of issuing structured notes linked to hedge funds. As a result, most of the risks are transferred as pass-through. The fair values of these investments are estimated using the NAV per share of the investments. Although most of these funds can be redeemed within six months, certain funds cannot be redeemed within six months due to contractual, liquidity or gating issues. The redemption period cannot be estimated for certain suspended or liquidating funds. Some of these investments contain restrictions against transfers of the investments to third parties.

Venture capital funds:

These investments include primarily start-up funds. The fair values of these investments in this category are estimated using the NAV per share of the investments. Most of these funds cannot be redeemed within six months. The redemption period cannot be estimated for certain suspended or liquidating funds. These investments contain restrictions against transfers of the investments to third parties.

Private equity funds:

These investments are made mainly in various sectors in Europe, United States and Japan. The fair values of these investments in this category are estimated using the NAV per share. Redemption is restricted for most of these investments. Some of these investments contain restrictions against transfers of the investments to third parties.

Real estate funds:

These are investments in commercial and other types of real estate. The fair values of these investments in this category are estimated using the NAV per share of the investments. Redemption is restricted for most of these investments. These investments contain restrictions against transfers of the investments to third parties.

Fair value option for financial assets and financial liabilities

Nomura carries certain eligible financial assets and liabilities at fair value through the election of the fair value option permitted by ASC 815 “Derivatives and Hedging” (“ASC 815”) and ASC 825 “Financial Instruments”. When Nomura elects the fair value option for an eligible item, changes in that item’s fair value are recognized through earnings. Election of the fair value option is generally irrevocable unless an event that gives rise to a new basis of accounting for that instrument occurs.

The financial assets and financial liabilities primarily elected for the fair value option by Nomura, and the reasons for the election, are as follows:

•

Equity method investments reported within Trading assets and private equity investments held for capital appreciation or current income purposes which Nomura generally has an intention to exit rather than hold indefinitely. Nomura elects the fair value option to more appropriately represent the purpose of these investments in these consolidated financial statements.

•

Loans reported within Loans and receivables which are risk managed on a fair value basis and loan commitments related to loans receivable for which the fair value option will be elected upon funding. Nomura elects the fair value option to mitigate volatility through earnings caused by the difference in measurement basis that otherwise would arise between loans and the derivatives used to risk manage those instruments.

•

Resale and repurchase agreements reported within Collateralized agreements and Collateralized financing which are risk managed on a fair value basis. Nomura elects the fair value option to mitigate volatility through earnings caused by the difference in measurement basis that otherwise would arise between the resale and repurchase agreements and the derivatives used to risk manage those instruments.

•

All structured notes issued on or after April 1, 2008 reported within Short-term borrowings and Long-term borrowings. Nomura elects the fair value option for those structured notes primarily to mitigate the volatility through earnings caused by differences in the measurement basis for structured notes and the derivatives Nomura uses to risk manage those positions. Nomura also elects the fair value option for certain notes issued by consolidated VIEs for the same purpose and for certain structured notes issued prior to April 1, 2008.

•

Financial liabilities reported within Long-term borrowings recognized in transactions which are accounted for as secured financing transactions under ASC 860. Nomura elects the fair value option for these financial liabilities to mitigate volatility through earnings that otherwise would arise had this election not been made. Even though Nomura usually has little or no continuing economic exposure to the transferred financial assets, they remain on the consolidated balance sheets and continue to be carried at fair value, with changes in fair value recognized through earnings.

Interest and dividends arising from financial instruments for which the fair value option has been elected are recognized within Interest and dividends, Interest expense or Net gain on trading.

The following tables present gains (losses) due to changes in fair value for financial instruments measured at fair value using the fair value option for the nine and three months ended December 31, 2012 and 2013.


	Billions of yen
	Nine months ended December 31
	2012			2013
	Gains / (Losses)⁽¹⁾
Assets:
Trading assets and private equity investments⁽²⁾
Trading assets	¥	1		¥	1
Private equity investments		(10	)		0
Loans and receivables		16			2
Collateralized agreements⁽³⁾		(0	)		4
Other assets⁽²⁾		0			13

Total	¥	7		¥	20

Liabilities:
Short-term borrowings⁽⁴⁾	¥	(1	)	¥	(1	)
Collateralized financing⁽³⁾		(0	)		(3	)
Long-term borrowings⁽⁴⁾⁽⁵⁾		(15	)		40
Other liabilities⁽⁶⁾		0			0

Total	¥	(16	)	¥	36


	Billions of yen
	Three months ended December 31
	2012			2013
	Gains / (Losses)⁽¹⁾
Assets:
Trading assets and private equity investments⁽²⁾
Trading assets	¥	0		¥	1
Private equity investments		(5	)		—
Loans and receivables		3			(0	)
Collateralized agreements⁽³⁾		1			5
Other assets⁽²⁾		0			13

Total	¥	(1	)	¥	19

Liabilities:
Short-term borrowings⁽⁴⁾	¥	(9	)	¥	(0	)
Collateralized financing⁽³⁾		(0	)		(3	)
Long-term borrowings⁽⁴⁾⁽⁵⁾		(46	)		(11	)
Other liabilities⁽⁶⁾		0			(0	)

Total	¥	(55	)	¥	(14	)

(1)	Includes gains and losses reported primarily within Net gain on trading and Gain (loss) on private equity investments in the consolidated statements of income.

(2)	Includes equity investments that would have been accounted for under the equity method had Nomura not chosen to elect the fair value option.

(3)	Includes resale and repurchase agreements.

(4)	Includes structured notes and other financial liabilities.

(5)	Includes secured financing transactions arising from transfers of financial assets which did not meet the criteria for sales accounting.

(6)	Includes loan commitments.

To account for the common stock of Ashikaga Holdings, Nomura elected to apply the fair value option for its 47.0% investment as of March 31, 2013 and 39.0% investment as of December 31, 2013. This investment is reported within Trading assets and private equity investments—Private equity investments and Other assets—Other as of March 31, 2013 and Other assets—Other as of December 31, 2013 in the consolidated balance sheets.

Nomura calculates the impact of changes in its own creditworthiness on certain financial liabilities for which the fair value option is elected by DCF valuation techniques at a rate which incorporates observable changes in its credit spread.

Losses from changes in the fair value of the financial liabilities for which the fair value option was elected, attributable to the change in its creditworthiness were ¥12 billion for the nine months ended December 31, 2012, mainly due to the tightening of Nomura’s credit spread. Losses from changes in the fair value of the financial liabilities for which the fair value option was elected, attributable to the change in Nomura’s creditworthiness, were ¥3 billion for the nine months ended December 31, 2013, mainly due to the tightening of Nomura’s credit spread.

Losses from changes in the fair value of the financial liabilities for which the fair value option was elected, attributable to the change in its creditworthiness were ¥6 billion for the three months ended December 31, 2012, mainly due to the tightening of Nomura’s credit spread. Losses from changes in the fair value of the financial liabilities for which the fair value option was elected, attributable to the change in its creditworthiness were ¥6 billion for the three months ended December 31, 2013, mainly because of the widening of Nomura’s credit spread.

There was no significant impact on financial assets for which the fair value option was elected attributable to instrument-specific credit risk.

As of March 31, 2013, the fair value of the aggregate unpaid principal balance (which is contractually principally protected) of loans and receivables for which the fair value option was elected was ¥1 billion more than the principal balance of such loans and receivables. The fair value of the aggregate unpaid principal balance (which is contractually principally protected) of long-term borrowings for which the fair value option was elected was ¥20 billion more than the principal balance of such long-term borrowings. There were no loans and receivables for which the fair value option was elected that were 90 days or more past due.

As of December 31, 2013, the fair value of the aggregate unpaid principal balance (which is contractually principally protected) of loans and receivables for which the fair value option was elected was ¥1 billion more than the principal balance of such loans and receivables. The fair value of the aggregate unpaid principal balance (which is contractually principally protected) of long-term borrowings for which the fair value option was elected was ¥10 billion more than the principal balance of such long-term borrowings. There were no loans and receivables for which the fair value option was elected that were 90 days or more past due.

Concentrations of credit risk

Concentrations of credit risk may arise from trading, securities financing transactions and underwriting activities, and may be impacted by changes in political or economic factors. Nomura has credit risk concentrations on bonds issued by the Japanese Government, U.S. Government, Governments within the European Union (“EU”), their states and municipalities, and their agencies. These concentrations generally arise from taking trading positions and are reported within Trading assets in the consolidated balance sheets. Government, agency and municipal securities, including Securities pledged as collateral, represented 22% of total assets as of March 31, 2013 and 20% as of December 31, 2013.

The following tables present geographic allocations of Nomura’s trading assets related to government, agency and municipal securities. See Note 3. “Derivative instruments and hedging activities” for further information regarding the concentration of credit risk for derivatives.


	Billions of yen
	March 31, 2013
	Japan		U.S.		EU		Other		Total⁽¹⁾
Government, agency and municipal securities	¥	3,403	¥	1,313	¥	3,262	¥	556	¥	8,534

	Billions of yen
	December 31, 2013
	Japan		U.S.		EU		Other		Total⁽¹⁾
Government, agency and municipal securities	¥	2,571	¥	2,170	¥	3,587	¥	505	¥	8,833

(1)

Other than above, there were ¥715 billion and ¥781 billion of government, agency and municipal securities in Other assets—Non-trading debt securities as of March 31, 2013 and December 31, 2013, respectively. The vast majority of these securities are Japanese government, agency and municipal securities.

Estimated fair value of financial instruments not carried at fair value

Certain financial instruments are not carried at fair value on a recurring basis in the consolidated balance sheets since they are neither held for trading purposes nor are elected for the fair value option. These are typically carried at contractual amounts due or amortized cost.

The carrying value of the majority of the financial instruments detailed below will approximate fair value since they are short-term in nature and contain minimal credit risk. These financial instruments include financial assets reported within Cash and cash equivalents, Time deposits, Deposits with stock exchanges and other segregated cash, Receivables from customers, Receivables from other than customers, Securities purchased under agreements to resell and Securities borrowed and financial liabilities reported within Short-term borrowings, Payables to customers, Payables to other than customers, Deposits received at banks, Securities sold under agreements to repurchase, Securities loaned and Other secured borrowings in the consolidated balance sheets. These would be generally classified in either Level 1 or Level 2 within the fair value hierarchy.

The estimated fair values of other financial instruments which are longer-term in nature or may contain more than minimal credit risk may be different to their carrying value. Financial assets of this type primarily include certain loans which are reported within Loans receivable while financial liabilities primarily include long-term borrowings which are reported within Long-term borrowings. The estimated fair value of loans receivable which are not elected for the fair value option is estimated in the same way as other loans carried at fair value on a recurring basis. Where quoted market prices are available, such market prices are utilized to estimate fair value. The fair value of long-term borrowings which are not elected for the fair value option is estimated in the same way as other borrowings carried at fair value on a recurring basis using quoted market prices where available or by DCF valuation techniques. All of these financial assets and financial liabilities would be generally classified in Level 2 or Level 3 within the fair value hierarchy using the same methodology as is applied to these instruments when they are elected for the fair value option.

The following tables present carrying values, fair values and classification within the fair value hierarchy for certain classes of financial instrument of which a portion of the ending balance was carried at fair value as of March 31, 2013 and December 31, 2013.


	Billions of yen
	March 31, 2013⁽¹⁾
					Fair value by level
	Carrying value		Fair value		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	¥	805	¥	805	¥	805	¥	—	¥	—
Time deposits		578		578		—		578		—
Deposits with stock exchanges and other segregated cash		270		270		—		270		—
Loans receivable⁽²⁾		1,575		1,576		—		1,352		224
Securities purchased under agreements to resell		8,295		8,295		—		8,295		—
Securities borrowed		5,820		5,820		—		5,820		—

Total Assets	¥	17,343	¥	17,344	¥	805	¥	16,315	¥	224

Liabilities:
Short-term borrowings	¥	738	¥	738	¥	—	¥	734	¥	4
Deposits received at banks		1,072		1,072		—		1,071		1
Securities sold under agreements to repurchase		12,444		12,444		—		12,440		4
Securities loaned		2,159		2,159		—		2,159		—
Long-term borrowings		7,592		7,430		114		7,093		223

Total Liabilities	¥	24,005	¥	23,843	¥	114	¥	23,497	¥	232


	Billions of yen
	December 31, 2013⁽¹⁾
					Fair value by level
	Carrying value		Fair value		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	¥	1,258	¥	1,258	¥	1,258	¥	—	¥	—
Time deposits		460		460		—		460		—
Deposits with stock exchanges and other segregated cash		340		340		—		340		—
Loans receivable⁽²⁾		1,472		1,472		—		1,223		249
Securities purchased under agreements to resell		9,722		9,722		—		9,722		0
Securities borrowed		6,759		6,759		—		6,759		—

Total Assets	¥	20,011	¥	20,011	¥	1,258	¥	18,504	¥	249

Liabilities:
Short-term borrowings	¥	560	¥	560	¥	—	¥	559	¥	1
Deposits received at banks		1,104		1,104		—		1,103		1
Securities sold under agreements to repurchase		14,495		14,495		—		14,495		0
Securities loaned		2,636		2,636		—		2,636		—
Long-term borrowings		7,997		7,934		130		7,483		321

Total Liabilities	¥	26,792	¥	26,729	¥	130	¥	26,276	¥	323

(1)	Includes financial instruments which are carried at fair value on a recurring basis.

(2)	Carrying values are shown after deducting allowance for loan losses.

Assets and liabilities measured at fair value on a nonrecurring basis

In addition to financial instruments carried at fair value on a recurring basis, Nomura also measures other financial and nonfinancial assets and liabilities at fair value on a nonrecurring basis, where the primary measurement basis is not fair value. Fair value is only used in specific circumstances after initial recognition such as to measure impairment.

For the year ended March 31, 2013, goodwill allocated to a certain reporting unit was measured at fair value on a nonrecurring basis. The relevant goodwill, which is reported within Other assets—Other in the consolidated balance sheets, was wholly impaired. Fair value was determined based on DCF and consequently, this nonrecurring fair value measurement has been determined using valuation inputs which would be classified in Level 3 of the fair value hierarchy.

For nine month ended December 31, 2013, goodwill allocated to a certain reporting unit was measured at fair value on a nonrecurring basis. The relevant goodwill, which is reported within Other assets—Other in the consolidated balance sheets, was written down to their fair value of ¥4 billion as a result of impairment. Fair value was determined based on DCF and consequently, this nonrecurring fair value measurement has been determined using valuation inputs which would be classified in Level 3 of the fair value hierarchy.

3. Derivative instruments and hedging activities:

Nomura uses a variety of derivative financial instruments, including futures, forwards, options and swaps, for both trading and non-trading purposes.

Derivatives used for trading purposes

In the normal course of business, Nomura enters into transactions involving derivative financial instruments to meet client needs, for trading purposes, and to reduce its own exposure to loss due to adverse fluctuations in interest rates, currency exchange rates and market prices of securities. These financial instruments include contractual agreements such as commitments to swap interest payment streams, exchange currencies or purchase or sell securities and other financial instruments on specific terms at specific future dates.

Nomura maintains active trading positions in a variety of derivative financial instruments. Most of Nomura’s trading activities are client oriented. Nomura utilizes a variety of derivative financial instruments as a means of bridging clients’ specific financial needs and investors’ demands in the securities markets. Nomura also actively trades securities and various derivatives to assist its clients in adjusting their risk profiles as markets change. In performing these activities, Nomura carries an inventory of capital markets instruments and maintains its access to market liquidity by quoting bid and offer prices to and trading with other market makers. These activities are essential to provide clients with securities and other capital markets products at competitive prices.

Futures and forward contracts are commitments to either purchase or sell securities, foreign currency or other capital market instruments at a specific future date for a specified price and may be settled in cash or through delivery. Foreign exchange contracts include spot and forward contracts and involve the exchange of two currencies at a rate agreed by the contracting parties. Risks arise from the possible inability of counterparties to meet the terms of their contracts and from movements in market prices. Futures contracts are executed through regulated exchanges which clear and guarantee performance of counterparties. Accordingly, credit risk associated with futures contracts is considered minimal. In contrast, forward contracts are generally negotiated between two counterparties and, therefore, are subject to the performance of the related counterparties.

Options are contracts that grant the purchaser, for a premium payment, the right to either purchase or sell a financial instrument at a specified price within a specified period of time or on a specified date from or to the writer of the option. The writer of options receives premiums and bears the risk of unfavorable changes in the market price of the financial instruments underlying the options.

Swaps are contractual agreements in which two counterparties agree to exchange certain cash flows, at specified future dates, based on an agreed contract. Certain agreements may result in combined interest rate and foreign currency exposures. Entering into swap agreements may involve the risk of credit losses in the event of counterparty default.

To the extent these derivative financial instruments are economically hedging financial instruments or securities positions of Nomura, the overall risk of loss may be fully or partly mitigated by the hedged position.

Nomura seeks to minimize its exposure to market risk arising from its use of these derivative financial instruments through various control policies and procedures, including position limits, monitoring procedures and hedging strategies whereby Nomura enters into offsetting or other positions in a variety of financial instruments.

Derivatives used for non-trading purposes

Nomura’s principal objectives in using derivatives for non-trading purposes are to manage interest rate risk, to modify the interest rate characteristics of certain financial liabilities, to manage net investment exposure to fluctuations in foreign exchange rates arising from certain foreign operations and to mitigate equity price risk arising from certain stock-based compensation awards given to employees.

Credit risk associated with derivatives utilized for non-trading purposes is controlled and managed in the same way as credit risk associated with derivatives utilized for trading purposes.

Nomura designates derivative financial instruments as fair value hedges of interest rate risk arising from specific financial liabilities. These derivatives are effective in reducing the risk associated with the exposure being hedged and they are highly correlated with changes in the fair value of the underlying hedged item, both at inception and throughout the life of the hedge contract. Changes in fair value of the hedging derivatives are reported together with those of the hedged liabilities through the consolidated statements of income within Interest expense.

Derivative financial instruments designated as hedges of the net investment in foreign operations relate to specific subsidiaries with non-Japanese yen functional currencies. When determining the effectiveness of net investment hedges, the effective portion of the change in fair value of the hedging derivative is determined by changes in spot exchange rates and is reported through NHI shareholders’ equity within Accumulated other comprehensive income (loss). Changes in fair value of the hedging derivatives attributable to changes in the difference between the forward rate and spot rate are excluded from the measure of hedge effectiveness and are reported in the consolidated statements of income within Revenue—Other.

Concentrations of credit risk for derivatives

The following tables present Nomura’s significant concentration of exposures to credit risk in OTC derivatives with financial institutions including transactions cleared through central counterparties. The gross fair value of derivative assets represents the maximum amount of loss due to credit risk that Nomura would incur if the counterparties of Nomura failed to perform in accordance with the terms of the instruments and any collateral or other security Nomura held in relation to those instruments proved to be of no value.


	Billions of yen
	March 31, 2013
	Gross fair value of derivative assets		Impact of master netting agreements			Impact of collateral			Net exposure to credit risk
Financial institutions	¥	20,169	¥	(18,415	)	¥	(981	)	¥	773

	Billions of yen
	December 31, 2013
	Gross fair value of derivative assets		Impact of master netting agreements			Impact of collateral			Net exposure to credit risk
Financial institutions	¥	22,149	¥	(20,105	)	¥	(893	)	¥	1,151

Derivative activities

The following tables quantify the volume of Nomura’s derivative activity through a disclosure of notional amounts, in comparison with the fair value of those derivatives. All amounts are disclosed on a gross basis, prior to counterparty netting of derivative assets and liabilities and cash collateral netting against net derivatives.


	Billions of yen
	March 31, 2013
	Derivative assets				Derivative liabilities
	Notional		Fair value		Notional⁽¹⁾		Fair value⁽¹⁾
Derivatives used for trading and non-trading purposes⁽²⁾⁽³⁾:
Equity contracts	¥	14,130	¥	1,857	¥	14,550	¥	2,017
Interest rate contracts		727,129		21,685		711,914		21,452
Credit contracts		44,582		1,839		42,889		1,979
Foreign exchange contracts		81,002		2,104		80,280		2,007
Commodity contracts		29		1		39		2

Total	¥	866,872	¥	27,486	¥	849,672	¥	27,457

Derivatives designated as hedging instruments:
Interest rate contracts	¥	1,748	¥	88	¥	162	¥	0
Foreign exchange contracts		92		1		24		1

Total	¥	1,840	¥	89	¥	186	¥	1

Total derivatives	¥	868,712	¥	27,575	¥	849,858	¥	27,458


	Billions of yen
	December 31, 2013
	Derivative assets				Derivative liabilities
	Notional		Fair value		Notional⁽¹⁾		Fair value⁽¹⁾
Derivatives used for trading and non-trading purposes⁽²⁾⁽³⁾:
Equity contracts	¥	14,973	¥	2,298	¥	18,810	¥	2,501
Interest rate contracts		1,050,355		20,836		1,044,069		20,521
Credit contracts		39,411		1,513		40,007		1,750
Foreign exchange contracts		97,356		3,654		102,996		3,516
Commodity contracts		23		1		34		1

Total	¥	1,202,118	¥	28,302	¥	1,205,916	¥	28,289

Derivatives designated as hedging instruments:
Interest rate contracts	¥	2,178	¥	69	¥	181	¥	0
Foreign exchange contracts		5		0		124		2

Total	¥	2,183	¥	69	¥	305	¥	2

Total derivatives	¥	1,204,301	¥	28,371	¥	1,206,221	¥	28,291

(1)	Includes the amount of embedded derivatives bifurcated in accordance with ASC 815.

(2)

(3)	Includes the amount of derivatives used for non-trading purposes which are not designated as fair value or net investment hedges. As of March 31, 2013 and December 31, 2013, these amounts have not been separately presented since such amounts were not significant.

Changes in fair value are recognized either through earnings or other comprehensive income depending on the purpose for which the derivatives are used.

Offsetting of derivatives

Counterparty credit risk associated with derivative financial instruments is controlled by Nomura through credit approvals, limits and monitoring procedures. To reduce default risk, Nomura requires collateral, principally cash collateral and government securities, for certain derivative transactions. From an economic standpoint, Nomura evaluates default risk exposure net of related collateral. Furthermore, OTC derivative transactions are typically documented under industry standard master netting agreements which reduce Nomura’s credit exposure to counterparties as they permit the close-out and offset of transactions and collateral amounts in the event of default of the counterparty. For certain OTC centrally-cleared and exchange-traded derivatives, the clearing or membership agreements entered into by Nomura provide similar rights to Nomura in the event of default of the relevant central clearing party or exchange. In order to support the enforceability of the close-out and offsetting rights within these agreements, particularly for transactions with counterparties in jurisdictions where relevant laws are complex or uncertain, Nomura generally seek to obtain an external legal opinion.

Derivative assets and liabilities with the same counterparty are offset in the consolidated balance sheets where the specific criteria defined by ASC 210-20 and ASC 815 are met. These criteria include requirements around the legal enforceability of the close-out and offset rights. In addition, fair value amounts recognized for the right to reclaim cash collateral (a receivable) and the obligation to return cash collateral (a payable) are also offset against net derivative liabilities and net derivative assets, respectively.

The following table presents information about offsetting of derivative instruments and related collateral amounts in the consolidated balance sheets by type of derivative contract, together with the extent to which master netting agreements entered into with counterparties, central clearing counterparties or exchanges permit additional offsetting of derivatives and collateral in the event of counterparty default.


	Billions of yen						Billions of yen
	March 31, 2013						December 31, 2013
	Derivative assets			Derivative liabilities⁽¹⁾			Derivative assets			Derivative liabilities⁽¹⁾
Equity contracts
OTC settled bilaterally	¥	1,112		¥	1,174		¥	1,351		¥	1,466
OTC centrally-cleared		—			—			—			—
Exchange-traded		745			843			947			1,035
Interest rate contracts
OTC settled bilaterally		12,887			12,609			10,913			10,647
OTC centrally-cleared		8,873			8,839			9,979			9,861
Exchange-traded		13			4			13			13
Credit contracts
OTC settled bilaterally		1,744			1,880			1,407			1,630
OTC centrally-cleared		95			99			106			120
Exchange-traded		0			0			0			0
Foreign exchange contracts
OTC settled bilaterally		2,097			2,002			3,634			3,500
OTC centrally-cleared		8			6			16			14
Exchange-traded		—			0			4			4
Commodity contracts
OTC settled bilaterally		0			1			0			0
OTC centrally-cleared		—			—			—			—
Exchange-traded		1			1			1			1

Total gross derivative balances⁽²⁾	¥	27,575		¥	27,458		¥	28,371		¥	28,291
Less: Amounts offset in the consolidated balance sheets⁽³⁾		(25,684	)		(25,636	)		(25,731	)		(26,081	)

Total net amounts reported on the face of the consolidated balance sheets⁽⁴⁾	¥	1,891		¥	1,822		¥	2,640		¥	2,210
Less: Additional amounts not offset in the consolidated balance sheets⁽⁵⁾
Financial instruments and non-cash collateral		(177	)		(138	)		(218	)		(42	)
Cash collateral⁽⁶⁾		—			(2	)		(0	)		(0	)

Net amount	¥	1,714		¥	1,682		¥	2,422		¥	2,168

(1)	Includes the amount of embedded derivatives bifurcated in accordance with ASC 815.

(2)	Includes all gross derivative asset and liability balances irrespective of whether they are transacted under legally enforceable master netting agreements.

(3)

Represents amounts offset through counterparty netting of derivative assets and liabilities as well as cash collateral netting against net derivatives under legally enforceable master netting and similar agreements in accordance with ASC 815. As of March 31, 2013, Nomura offset a total of ¥985 billion of cash collateral receivables against net derivative liabilities and ¥1,033 billion of cash collateral payables against net derivative assets. As of December 31, 2013, Nomura offset a total of ¥1,325 billion of cash collateral receivables against net derivative liabilities and ¥975 billion of cash collateral payables against net derivative assets.

(4)

Net derivative assets and net derivative liabilities are generally reported within Trading assets and private equity investments—Trading assets and Trading liabilities, respectively in the consolidated balance sheet. Bifurcated embedded derivatives are reported within Short-term borrowings or Long-term borrowings depending on the maturity of the underlying host contract.

(5)

Represents amounts which are not permitted to be offset on the face of the consolidated balance sheets in accordance with ASC 210-20 and ASC 815 but which provide Nomura with a legally enforceable right of offset in the event of counterparty default. Amounts relating to derivative and collateral agreements where Nomura does not have the legal right of offset or has not determined with sufficient certainty whether the right of offset is legally enforceable are excluded.

(6)

As of March 31, 2013, a total of ¥220 billion of cash collateral receivables and ¥497 billion of cash collateral payables, including amounts reported in the table, have not been offset against net derivatives. As of December 31, 2013, a total of ¥191 billion of cash collateral receivables and ¥659 billion of cash collateral payables, including amounts reported in the table, have not been offset against net derivatives.

Derivatives used for trading purposes

Derivative financial instruments used for trading purposes, including bifurcated embedded derivatives, are carried at fair value with changes in fair value recognized through the consolidated statements of income within Revenue—Net gain on trading.

The following tables present amounts included in the consolidated statements of income related to derivatives used for trading and non-trading purposes by type of underlying derivative contract.


	Billions of yen
	Nine months ended December 31
	2012			2013
Derivatives used for trading and non-trading purposes⁽¹⁾⁽²⁾:
Equity contracts	¥	(7	)	¥	(89	)
Interest rate contracts		(86	)		101
Credit contracts		36			(54	)
Foreign exchange contracts		(173	)		(174	)
Commodity contracts		(0	)		0

Total	¥	(230	)	¥	(216	)


	Billions of yen
	Three months ended December 31
	2012			2013
Derivatives used for trading and non-trading purposes⁽¹⁾⁽²⁾:
Equity contracts	¥	(8	)	¥	(107	)
Interest rate contracts		(65	)		65
Credit contracts		48			(17	)
Foreign exchange contracts		(229	)		(55	)
Commodity contracts		(0	)		0

Total	¥	(254	)	¥	(114	)

(1)

(2)

Includes net gains (losses) on derivatives used for non-trading purposes which are not designated as fair value or net investment hedges. For the nine and three months ended December 31, 2012 and 2013, these amounts have not been separately presented as net gains (losses) for these non-trading derivatives were not significant.

Fair value hedges

Nomura issues Japanese yen and foreign currency denominated debt with both fixed and floating interest rates. Nomura generally enters into swap agreements to convert fixed rate interest payments on its debt obligations to a floating rate and applies fair value hedge accounting to these instruments. Derivative financial instruments designated as fair value hedges are carried at fair value. Changes in fair value of the hedging derivatives are recognized together with those of the hedged liabilities in the consolidated statements of income within Interest expense.

The following tables present amounts included in the consolidated statements of income related to derivatives designated as fair value hedges by type of underlying derivative contract and the nature of the hedged item.


	Billions of yen
	Nine months ended December 31
	2012			2013
Derivatives designated as hedging instruments:
Interest rate contracts	¥	27		¥	(4	)

Total	¥	27		¥	(4	)

Hedged items:
Long-term borrowings	¥	(27	)	¥	4

Total	¥	(27	)	¥	4


	Billions of yen
	Three months ended December 31
	2012			2013
Derivatives designated as hedging instruments:
Interest rate contracts	¥	4		¥	1

Total	¥	4		¥	1

Hedged items:
Long-term borrowings	¥	(4	)	¥	(1	)

Total	¥	(4	)	¥	(1	)

Net investment hedges

Nomura designates foreign currency forwards and foreign currency denominated long-term debt as hedges of certain subsidiaries with significant foreign exchange risks and applies hedge accounting to these instruments. Accordingly, the effective hedging portion of the foreign exchange gains (losses) arising from the derivative contracts and non-derivative financial products designated as hedges is recognized through the consolidated statements of comprehensive income within Other comprehensive income (loss)—Change in cumulative translation adjustments, net of tax. This is offset by the foreign exchange adjustments arising from consolidation of the relevant foreign subsidiaries.

The following tables present gains from derivatives and non-derivatives designated as net investment hedges included in the consolidated statements of comprehensive income.


	Billions of yen
	Nine months ended December 31
	2012			2013
Hedging instruments:
Foreign exchange contracts	¥	(6	)	¥	(9	)
Long-term borrowings		(8	)		—

Total	¥	(14	)	¥	(9	)


	Billions of yen
	Three months ended December 31
	2012			2013
Hedging instruments:
Foreign exchange contracts	¥	(17	)	¥	(8	)
Long-term borrowings		(16	)		—

Total	¥	(33	)	¥	(8	)

(1)

The portion of the gains (losses) representing the amount of hedge ineffectiveness and the amount excluded from the assessment of hedge effectiveness are recognized within Revenue—Other in the consolidated statements of income. The amount of gains (losses) was not significant during the nine months ended December 31, 2012 and 2013. The amount of gains (losses) was not significant during the three months ended December 31, 2012 and 2013.

Derivatives containing credit risk related contingent features

Nomura enters into certain OTC derivatives and other agreements containing credit risk related contingent features. These features would require Nomura to post additional collateral or settle the instrument upon occurrence of a credit event, the most common of which would be a downgrade in the Company’s long-term credit rating.

The aggregate fair value of all derivative instruments with credit risk related contingent features that were in a liability position as of March 31, 2013, was ¥960 billion with related collateral pledged of ¥754 billion. In the event of a one-notch downgrade to Nomura’s long-term credit rating in effect as of March 31, 2013, the aggregate fair value of assets that would have been required to be posted as additional collateral or that would have been needed to settle the instruments immediately was ¥102 billion.

The aggregate fair value of all derivative instruments with credit risk related contingent features that were in a liability position as of December 31, 2013, was ¥1,017 billion with related collateral pledged of ¥779 billion. In the event of a one-notch downgrade to Nomura’s long-term credit rating in effect as of December 31, 2013, the aggregate fair value of assets that would have been required to be posted as additional collateral or that would have been needed to settle the instruments immediately was ¥113 billion.

Credit derivatives

Credit derivatives are derivative instruments in which one or more of their underlyings are related to the credit risk of a specified entity (or group of entities) or an index based on the credit risk of a group of entities that expose the seller of credit protection to potential loss from credit risk related events specified in the contract.

Written credit derivatives are instruments or embedded features where Nomura assumes third party credit risk, either as guarantor in a guarantee-type contract, or as the party that provides credit protection in an option-type contract, credit default swap, or any other credit derivative contract.

Nomura enters into credit derivatives as part of its normal trading activities as both purchaser and seller of protection for credit risk mitigation, proprietary trading positions and for client transactions.

The most significant type of credit derivatives used by Nomura are single-name credit default swaps where settlement of the derivative is based on the credit risk of a single third party. Nomura also writes credit derivatives linked to the performance of credit default indices and issues other credit risk related portfolio products.

Nomura would have to perform under a credit derivative contract if a credit event as defined in the respective contract occurs. Typical credit events include bankruptcy, failure to pay and restructuring of obligations of the reference asset.

Credit derivative contracts written by Nomura are either cash or physically settled. In cash-settled instruments, once payment is made upon an event of a default, the contract usually terminates with no further payments due. Nomura generally has no right to assume the reference assets of the counterparty in exchange for payment, nor does Nomura usually have any direct recourse to the actual issuers of the reference assets to recover the amount paid. In physically settled contracts, upon a default event, Nomura takes delivery of the reference asset in return for payment of the full notional amount of the contract.

Nomura actively monitors and manages its credit derivative exposures. Where protection is sold, risks may be mitigated by purchasing credit protection from other third parties either on identical underlying reference assets or on underlying reference assets with the same issuer which would be expected to behave in a correlated fashion. The most common form of recourse provision to enable Nomura to recover from third parties any amounts paid under a written credit derivative is therefore not through the derivative itself but rather through the separate purchase of credit derivatives with identical or correlated underlyings.

Nomura quantifies the value of these purchased contracts in the following tables in the column titled “Purchased Credit Protection.” These amounts represent purchased credit protection with identical underlyings to the written credit derivative contracts which act as a hedge against Nomura’s exposure. To the extent Nomura is required to pay out under the written credit derivative, a similar amount would generally become due to Nomura under the purchased hedge.

Credit derivatives have a stated notional amount which represents the maximum payment Nomura may be required to make under the contract. However, this is generally not a true representation of the amount Nomura will actually pay as in addition to purchased credit protection, other risk mitigating factors reduce the likelihood and amount of any payment, including:

The probability of default: Nomura values credit derivatives taking into account the probability that the underlying reference asset will default and that Nomura will be required to make payments under the contract. Based on historical experience and Nomura’s assessment of the market, Nomura believes that the probability that all reference assets on which Nomura provides protection will default in a single period is remote. The disclosed notional amount, therefore, significantly overstates Nomura’s realistic exposure on these contracts.

The recovery value on the underlying asset: In the case of a default, Nomura’s liability on a contract is limited to the difference between the notional amount and the recovery value of the underlying reference asset. While the recovery value on a defaulted asset may be minimal, this does reduce amounts paid on these contracts.

Nomura holds assets as collateral in relation to written credit derivatives. However, these amounts do not enable Nomura to recover any amounts paid under the credit derivative but rather mitigate the risk of economic loss arising from a counterparty defaulting against amounts due to Nomura under the contract. Collateral requirements are determined on a counterparty level rather than individual contract, and also generally cover all types of derivative contracts rather than just credit derivatives.

The following tables present information about Nomura’s written credit derivatives and purchased credit protection with identical underlyings as of March 31, 2013 and December 31, 2013.


	Billions of yen
	March 31, 2013
				Maximum potential payout/Notional										Notional
						Years to maturity								Purchased credit protection
	Carrying value (Asset) / Liability⁽¹⁾			Total		Less than 1 year		1 to 3 years		3 to 5 years		More than 5 years		Purchased credit protection
Single-name credit default swaps	¥	210		¥	24,659	¥	4,575	¥	7,961	¥	9,877	¥	2,246	¥	22,431
Credit default indices		(16	)		12,722		1,482		3,555		6,815		870		11,592
Other credit risk related portfolio products		230			2,586		666		1,112		215		593		1,710
Credit risk related options and swaptions		0			51		—		—		27		24		42

Total	¥	424		¥	40,018	¥	6,723	¥	12,628	¥	16,934	¥	3,733	¥	35,775


	Billions of yen
	December 31, 2013
				Maximum potential payout/Notional										Notional
						Years to maturity								Purchased credit protection
	Carrying value (Asset) / Liability⁽¹⁾			Total		Less than 1 year		1 to 3 years		3 to 5 years		More than 5 years		Purchased credit protection
Single-name credit default swaps	¥	(121	)	¥	23,411	¥	4,572	¥	8,786	¥	7,798	¥	2,255	¥	20,992
Credit default indices		(42	)		9,815		1,380		3,892		4,004		539		8,740
Other credit risk related portfolio products		(13	)		1,284		637		430		205		12		799
Credit risk related options and swaptions		(1	)		292		—		—		292		—		231

Total	¥	(177	)	¥	34,802	¥	6,589	¥	13,108	¥	12,299	¥	2,806	¥	30,762

(1)	Carrying value amounts are shown on a gross basis prior to cash collateral or counterparty netting.

The following tables present information about Nomura’s written credit derivatives by external credit rating of the underlying asset. Ratings are based on Standard & Poor’s Financial Services LLC (“S&P”), or if not rated by S&P, based on Moody’s Investors Service, Inc. If ratings from either of these agencies are not available, the ratings are based on Fitch Ratings Ltd. or Japan Credit Rating Agency, Ltd. For credit default indices, the rating is determined by taking the weighted average of the external credit ratings given for each of the underlying reference entities comprising the portfolio or index.


	Billions of yen
	March 31, 2013
	Maximum potential payout/Notional
	AAA		AA		A		BBB		BB		Other⁽¹⁾		Total
Single-name credit default swaps	¥	2,400	¥	1,594	¥	5,945	¥	8,208	¥	4,073	¥	2,439	¥	24,659
Credit default indices		14		589		6,360		3,516		1,910		333		12,722
Other credit risk related portfolio products		77		17		9		127		243		2,113		2,586
Credit risk related options and swaptions		—		—		18		—		33		—		51

Total	¥	2,491	¥	2,200	¥	12,332	¥	11,851	¥	6,259	¥	4,885	¥	40,018


	Billions of yen
	December 31, 2013
	Maximum potential payout/Notional
	AAA		AA		A		BBB		BB		Other⁽¹⁾		Total
Single-name credit default swaps	¥	2,240	¥	1,428	¥	5,631	¥	7,784	¥	3,962	¥	2,366	¥	23,411
Credit default indices		52		23		4,824		3,201		1,427		288		9,815
Other credit risk related portfolio products		22		—		1		—		4		1,257		1,284
Credit risk related options and swaptions		—		—		249		21		22		—		292

Total	¥	2,314	¥	1,451	¥	10,705	¥	11,006	¥	5,415	¥	3,911	¥	34,802

(1)	“Other” includes credit derivatives where the credit rating of the underlying reference asset is below investment grade or where a rating is unavailable.

4. Collateralized transactions:

Nomura enters into collateralized transactions, including reverse repurchase agreements and repurchase agreements, securities borrowing and lending transactions, and other secured borrowings mainly to meet clients’ needs, finance trading inventory positions and obtain securities for settlements. These transactions are typically documented under industry standard master netting agreements which reduce Nomura’s credit exposure to counterparties as they permit the close-out and offset of transactions and collateral amounts in the event of default of the counterparty. Certain transactions with central clearing parties may also permit offsetting of transactions in the ordinary course of business. In order to support the enforceability of the close-out and offsetting rights within these agreements, particularly for transactions with counterparties in jurisdictions where relevant laws are complex or uncertain, Nomura generally seeks to obtain an external legal opinion.

In all of these transactions, Nomura either receives or provides collateral, including Japanese and non-Japanese government, agency, mortgage-backed, bank and corporate debt securities and equities. In most cases, Nomura is permitted to use the securities received to secure repurchase agreements, enter into securities lending transactions or to cover short positions with counterparties. In repurchase and reverse repurchase transactions, the value of collateral typically exceeds the amount of cash transferred. Collateral is generally in the form of securities. Securities borrowing transactions generally require Nomura to provide the counterparty with collateral in the form of cash or other securities. For securities lending transactions, Nomura generally receives collateral in the form of cash or other securities. Nomura monitors the market value of the securities borrowed or loaned and requires additional cash or securities, as necessary, to ensure that such transactions are adequately collateralized throughout the life of the transactions.

Reverse repurchase agreements and repurchase agreements, securities borrowing and lending transactions with the same counterparty are offset in the consolidated balance sheets where the specific criteria defined by ASC 210-20 are met. These criteria include requirements around the maturity of the transactions, the underlying systems on which the collateral is settled, associated banking arrangements and the legal enforceability of the close-out and offsetting rights.

The following tables present information about offsetting of these transactions in the consolidated balance sheets, together with the extent to which master netting agreements entered into with counterparties and central clearing parties permit additional offsetting in the event of counterparty default.


	Billions of yen
	March 31, 2013
	Assets						Liabilities
	Reverse repurchase agreements			Securities borrowing transactions			Repurchase agreements			Securities lending transactions
Total gross balance⁽¹⁾	¥	22,183		¥	6,064		¥	26,332		¥	2,462
Less: Amounts offset in the consolidated balance sheets⁽²⁾		(13,888	)		(256	)		(13,888	)		(256	)

Total net amounts of reported on the face of the consolidated balance sheets⁽³⁾	¥	8,295		¥	5,808		¥	12,444		¥	2,206

Less: Additional amounts not offset in the consolidated balance sheets⁽⁴⁾
Financial instruments and non-cash collateral		(6,588	)		(3,889	)		(10,201	)		(1,935	)
Cash collateral		(1	)		—			0			—

Net amount	¥	1,706		¥	1,919		¥	2,243		¥	271


	Billions of yen
	December 31, 2013
	Assets						Liabilities
	Reverse repurchase agreements			Securities borrowing transactions			Repurchase agreements			Securities lending transactions
Total gross balance⁽¹⁾	¥	23,766		¥	6,750		¥	28,539		¥	2,942
Less: Amounts offset in the consolidated balance sheets⁽²⁾		(14,044	)		(1	)		(14,044	)		(1	)

Total net amounts of reported on the face of the consolidated balance sheets⁽³⁾	¥	9,722		¥	6,749		¥	14,495		¥	2,941

Less: Additional amounts not offset in the consolidated balance sheets⁽⁴⁾
Financial instruments and non-cash collateral		(8,263	)		(5,073	)		(11,481	)		(2,358	)
Cash collateral		0			—			(1	)		—

Net amount	¥	1,459		¥	1,676		¥	3,013		¥	583

(1)	Includes all recognized balances irrespective of whether they are transacted under legally enforceable master netting agreements. Amounts include transactions carried at fair value through election of the fair value option and amounts carried at amortized cost.

(2)

Represents amounts offset through counterparty netting of repurchase agreements and reverse repurchase agreements under legally enforceable master netting and similar agreements in accordance with ASC 210-20. Amount offset include transactions carried at fair value through election of the fair value option and amounts carried at amortized cost.

(3)

Reverse repurchase agreements and securities borrowing transactions are reported within Collateralized agreements—Securities purchased under agreements to resell and Collateralized agreements—Securities borrowed in the consolidated balance sheets, respectively. Repurchase agreements and securities lending transactions are reported within Collateralized financing—Securities sold under agreements to repurchase and Collateralized financing—Securities loaned in the consolidated balance sheets, respectively. Amounts reported under securities lending transactions also include transactions where Nomura lends securities and receives securities that can be sold or pledged as collateral. Nomura recognizes the securities received at fair value and a liability for the same amount, representing the obligation to return those securities. The liability is reported within Other liabilities in the consolidated balance sheets.

(4)

Represents amounts which are not permitted to be offset on the face of the balance sheet in accordance with ASC 210-20 but which provide Nomura with the right of offset in the event of counterparty default. Amounts relating to agreements where Nomura does not have a legal right of offset or has not yet determined with sufficient certainty whether the right of offset is legally enforceable are excluded.

The fair value of securities received as collateral, securities borrowed with collateral and securities borrowed without collateral which Nomura is permitted to sell or repledge and the portion that has been sold or repledged are as follows.


	Billions of yen
	March 31, 2013		December 31, 2013
The fair value of securities received as collateral, securities borrowed as collateral and securities borrowed without collateral where Nomura is permitted by contract or custom to sell or repledge the securities	¥	35,281	¥	38,702
The portion of the above that has been sold (reported within Trading liabilities in the consolidated balance sheets) or repledged		28,488		32,210

Nomura pledges firm-owned securities to collateralize repurchase agreements and other secured financings. Pledged securities that can be sold or repledged by the secured party, including Gensaki Repo transactions, are reported in parentheses as Securities pledged as collateral within Trading assets in the consolidated balance sheets. Assets owned, which have been pledged as collateral, primarily to stock exchanges and clearing organizations, without allowing the secured party the right to sell or repledge them, are summarized in the tables below.


	Millions of yen
	March 31, 2013		December 31, 2013
Trading assets:
Equities and convertible securities	¥	86,108	¥	141,003
Government and government agency securities		1,314,277		1,351,342
Bank and corporate debt securities		161,233		181,458
Commercial mortgage-backed securities (“CMBS”)		33,723		38,751
Residential mortgage-backed securities (“RMBS”)		1,674,898		1,291,256
Collateralized debt obligations (“CDO”) and other⁽¹⁾		84,065		89,082
Investment trust funds and other		16,335		45,692
Deposits with stock exchanges and other segregated cash		4,110		4,798

Total	¥	3,374,749	¥	3,143,382

Non-trading debt securities	¥	49,811	¥	52,062
Investments in and advances to affiliated companies	¥	37,636	¥	37,870

(1)	Includes CLO and ABS (such as on credit card loans, auto loans and student loans).

Assets subject to lien, except for those disclosed above, are as follows:


	Millions of yen
	March 31, 2013		December 31, 2013
Loans and receivables	¥	706	¥	518
Trading assets		1,208,753		1,258,451
Office buildings, land, equipment and facilities		955		4,830
Non-trading debt securities		315,781		356,332
Other		83		78

Total	¥	1,526,278	¥	1,620,209

Assets in the above table were primarily pledged for secured borrowings, including other secured borrowings, collateralized borrowings of consolidated VIEs and trading balances of secured borrowings, and derivative transactions.

5. Non-trading securities:

Non-trading securities held by Nomura’s insurance subsidiary are carried at fair value within Other assets—Non-trading debt securities and Other assets—Other in the consolidated balance sheets, and unrealized changes in fair value are reported net-of-tax within Other comprehensive income (loss) in the consolidated statements of comprehensive income. Realized gains and losses on non-trading securities are recognized within Revenue—Other in the consolidated statements of income.

The following tables present information regarding the cost and/or amortized cost, gross unrealized gains and losses and fair value of non-trading securities held by Nomura’s insurance subsidiary as of March 31, 2013 and December 31, 2013.


	Millions of yen
	March 31, 2013
	Cost and/or amortized cost		Unrealized gains and losses				Fair value
	Cost and/or amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value
Government, agency and municipal securities	¥	177,374	¥	5,294	¥	126	¥	182,542
Other debt securities		54,032		726		86		54,672
Equity securities		39,997		12,923		109		52,811

Total	¥	271,403	¥	18,943	¥	321	¥	290,025


	Millions of yen
	December 31, 2013
	Cost and/or amortized cost		Unrealized gains and losses				Fair value
	Cost and/or amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value
Government, agency and municipal securities	¥	161,869	¥	7,602	¥	239	¥	169,232
Other debt securities		87,909		1,069		128		88,850
Equity securities		38,278		17,178		16		55,440

Total	¥	288,056	¥	25,849	¥	383	¥	313,522

For the nine months ended December 31, 2012, non-trading securities of ¥420,234 million were disposed of resulting in ¥7,544 million of realized gains and ¥1,050 million of realized losses. Total proceeds received from these disposals were ¥426,728 million. For the nine months ended December 31, 2013, non-trading securities of ¥110,649 million were disposed of resulting in ¥1,823 million of realized gains and ¥78 million of realized losses. Total proceeds received from these disposals were ¥112,394 million.

For the three months ended December 31, 2012, non-trading securities of ¥78,477 million were disposed of resulting in ¥2,463 million of realized gains and ¥41 million of realized losses. Total proceeds received from these disposals were ¥80,899 million. For the three months ended December 31, 2013, non-trading securities of ¥12,228 million were disposed of resulting in ¥1 million of realized gains and ¥36 million of realized losses. Total proceeds received from these disposals were ¥12,193 million. Related gains and losses were computed using the average method and were recognized in Revenue—Other in the consolidated statements of income.

The following table presents the fair value of residual contractual maturity of non-trading debt securities as of December 31, 2013. Actual maturities may differ from contractual maturities as certain securities contain features that allow redemption of the securities prior to their contractual maturity.


	Millions of yen
	December 31, 2013
	Total		Years to maturity
	Total		Less than 1 year		1 to 5 years		5 to 10 years		More than 10 years
Non-trading debt securities	¥	258,082	¥	33,925	¥	123,372	¥	83,718	¥	17,067

The following tables present the fair value and gross unrealized losses of non-trading securities aggregated by the length of time that individual securities have been in a continuous unrealized loss position as of March 31, 2013 and December 31, 2013.


	Millions of yen
	March 31, 2013
	Less than 12 months				More than 12 months				Total
	Fair value		Gross unrealized losses		Fair value		Gross unrealized losses		Fair value		Gross unrealized losses
Government, agency and municipal securities	¥	56,400	¥	80	¥	2,903	¥	46	¥	59,303	¥	126
Other debt securities		10,404		86		—		—		10,404		86
Equity securities		1,517		109		—		—		1,517		109

Total	¥	68,321	¥	275	¥	2,903	¥	46	¥	71,224	¥	321


	Millions of yen
	December 31, 2013
	Less than 12 months				More than 12 months				Total
	Fair value		Gross unrealized losses		Fair value		Gross unrealized losses		Fair value		Gross unrealized losses
Government, agency and municipal securities	¥	63,980	¥	238	¥	2,289	¥	1	¥	66,269	¥	239
Other debt securities		16,440		128		—		—		16,440		128
Equity securities		425		16		—		—		425		16

Total	¥	80,845	¥	382	¥	2,289	¥	1	¥	83,134	¥	383

As of March 31, 2013, the total number of non-trading securities in unrealized loss positions was approximately 80. As of December 31, 2013, the total number of non-trading securities in unrealized loss positions was approximately 90.

Where the fair value of non-trading securities held by the insurance subsidiary has declined below amortized cost, these are assessed to determine whether the decline in fair value is other-than-temporary in nature. Nomura considers quantitative and qualitative factors including the length of time and extent to which fair value has been less than amortized cost, the financial condition and near-term prospects of the issuer and Nomura’s intent and ability to hold the securities for a period of time sufficient to allow for any anticipated recovery in fair value. If an other-than-temporary impairment loss exists, for equity securities, the security is written down to fair value, with the entire difference between fair value and amortized cost recognized within Revenue—Other in the consolidated statements of income. For debt securities, an other-than-temporary impairment loss is also recognized within Revenue—Other in the consolidated statements of income if Nomura intends to sell the debt security or it is more-likely-than-not that Nomura will be required to sell the debt security before recovery of amortized cost. If Nomura does not expect to sell or be required to sell the debt security, only the credit loss component of an other-than-temporary impairment loss is recognized through earnings and any non-credit loss component recognized within Other comprehensive income (loss).

For the nine and three months ended December 31, 2012, other-than-temporary impairment losses recognized for the certain non-trading equity securities were ¥4,823 million and ¥15 million, respectively. The amount of credit loss component of other-than-temporary impairment losses recognized for the certain non-trading debt securities were not significant. Other-than-temporary impairment losses related to the non-credit loss component recognized for the certain non-trading debt securities within Other comprehensive income (loss) were ¥154 million and ¥(222) million, respectively. Other gross unrealized losses of non-trading securities were considered temporary.

For the nine and three months ended December 31, 2013, other-than-temporary impairment losses recognized for the certain non-trading equity securities were ¥57 million and ¥9 million, respectively. For the nine months ended December 31, 2013, the amount of credit loss component of other-than-temporary impairment losses recognized for the certain non-trading debt securities was ¥25 million. For the three months ended December 31, 2013, the amount of credit loss component of other-than-temporary impairment losses recognized for the certain non-trading debt securities was not significant. For the nine and three months ended December 31, 2013, other-than-temporary impairment losses related to the non-credit loss component recognized for the certain non-trading debt securities and the subsequent changes in the fair value within Other comprehensive income (loss) were ¥(60) million and ¥2 million. Other gross unrealized losses of non-trading securities were considered temporary.

6. Securitizations and Variable Interest Entities:

Securitizations

Nomura utilizes special purpose entities (“SPEs”) to securitize commercial and residential mortgage loans, government agency and corporate securities and other types of financial assets. Those SPEs are incorporated as stock companies, Tokumei kumiai (silent partnerships), Cayman special purpose companies (“SPCs”) or trust accounts. Nomura’s involvement with SPEs includes structuring SPEs, underwriting, distributing and selling debt instruments and beneficial interests issued by SPEs to investors. Nomura accounts for the transfer of financial assets in accordance with ASC 860. This statement requires that Nomura accounts for the transfer of financial assets as a sale when Nomura relinquishes control over the assets. ASC 860 deems control to be relinquished when the following conditions are met: (a) the assets have been isolated from the transferor (even in bankruptcy or other receivership), (b) the transferee has the right to pledge or exchange the assets received, or if the transferee is an entity whose sole purpose is to engage in securitization or asset-backed financing activities, the holders of its beneficial interests have the right to pledge or exchange the beneficial interests, and (c) the transferor has not maintained effective control over the transferred assets. Nomura may retain an interest in the financial assets, including residual interests in the SPEs. Any such interests are accounted for at fair value and reported within Trading assets in Nomura’s consolidated balance sheets, with the change in fair value reported within Revenue—Net gain on trading. Fair value for retained interests in securitized financial assets is determined by using observable prices; or in cases where observable prices are not available for certain retained interests, Nomura estimates fair value based on the present value of expected future cash flows using its best estimates of the key assumptions, including forecasted credit losses, prepayment rates, forward yield curves and discount rates commensurate with the risks involved. Nomura may also enter into derivative transactions in relation to the assets transferred to an SPE.

As noted above, Nomura may have continuing involvement with SPEs to which Nomura transferred assets. For the nine and three months ended December 31, 2012, Nomura received cash proceeds from SPEs in new securitizations of ¥336 billion and ¥33 billion, respectively, and there was no associated profit on sale. For the nine and three months ended December 31, 2013, Nomura received cash proceeds from SPEs in new securitizations of ¥324 billion and ¥123 billion, respectively, and there was no associated profit on sale. For the nine and three months ended December 31, 2012, Nomura received debt securities issued by these SPEs with an initial fair value of ¥1,293 billion and ¥469 billion, respectively, and cash inflows from third parties on the sale of those debt securities of ¥712 billion and ¥261 billion, respectively. For the nine and three months ended December 31, 2013, Nomura received debt securities issued by these SPEs with an initial fair value of ¥1,179 billion and ¥362 billion, respectively, and cash inflows from third parties on the sale of those debt securities of ¥674 billion and ¥178 billion, respectively. The cumulative balance of financial assets transferred to SPEs with which Nomura has continuing involvement was ¥4,109 billion and ¥5,182 billion as of March 31, 2013 and December 31, 2013, respectively. Nomura’s retained interests were ¥300 billion and ¥231 billion, as of March 31, 2013 and December 31, 2013, respectively. For the nine and three months ended December 31, 2012, Nomura received cash flows of ¥16 billion and ¥5 billion, respectively, from the SPEs on the retained interests held in the SPEs. For the nine and three months ended December 31, 2013, Nomura received cash flows of ¥34 billion and ¥5 billion, respectively, from the SPEs on the retained interests held in the SPEs. Nomura had outstanding collateral service agreements or written credit default swap agreements in the amount of ¥18 billion and ¥4 billion as of March 31, 2013 and December 31, 2013, respectively. Nomura does not provide financial support to SPEs beyond its contractual obligations.

The following tables present the fair value of retained interests which Nomura has continuing involvement in SPEs and their classification in the fair value hierarchy, categorized by the type of transferred assets.


	Billions of yen
	March 31, 2013
	Level 1		Level 2		Level 3		Total		Investment grade		Other
Government, agency and municipal securities	¥	—	¥	296	¥	—	¥	296	¥	296	¥	—
Bank and corporate debt securities		—		—		0		0		—		0
Mortgage and mortgage-backed securities		—		2		2		4		2		2

Total	¥	—	¥	298	¥	2	¥	300	¥	298	¥	2


	Billions of yen
	December 31, 2013
	Level 1		Level 2		Level 3		Total		Investment grade		Other
Government, agency and municipal securities	¥	—	¥	211	¥	—	¥	211	¥	211	¥	—
Bank and corporate debt securities		—		—		0		0		—		0
Mortgage and mortgage-backed securities		—		19		1		20		1		19

Total	¥	—	¥	230	¥	1	¥	231	¥	212	¥	19

The following table presents the key economic assumptions used to determine the fair value of the retained interests and the sensitivity of this fair value to immediate adverse changes of 10% and 20% in those assumptions.


	Billions of yen, except percentages
	Material retained interests held⁽¹⁾
	March 31, 2013			December 31, 2013
Fair value of retained interests⁽¹⁾	¥	288		¥	214
Weighted-average life (Years)		6.0			7.5
Constant prepayment rate		10.1	%		6.3	%
Impact of 10% adverse change		(2.6	)		(1.5	)
Impact of 20% adverse change		(5.0	)		(3.0	)
Discount rate		3.6	%		4.7	%
Impact of 10% adverse change		(4.2	)		(1.2	)
Impact of 20% adverse change		(8.2	)		(2.4	)

(1)	The sensitivity analysis covers the material retained interests held of ¥288 billion out of ¥300 billion as of March 31, 2013 and ¥214 billion out of ¥231 billion as of December 31, 2013.

Nomura considers the amount and the probability of anticipated credit loss from the retained interests which Nomura continuously holds would be minimal.

Changes in fair value based on 10% or 20% adverse changes generally cannot be extrapolated since the relationship of the change in assumption to the change in fair value may not be linear. The impact of a change in a particular assumption is calculated holding all other assumptions constant. For this reason, concurrent changes in assumptions may magnify or counteract the sensitivities disclosed above. The sensitivity analyses are hypothetical and do not reflect Nomura’s risk management practices that may be undertaken under those stress scenarios.

The following table presents the type and carrying value of financial assets included within Trading assets which have been transferred to SPEs but which do not meet the criteria for derecognition under ASC 860. These transfers are accounted for as secured financing transactions and generally reported within Long-term borrowings. The assets are pledged as collateral of the associated liabilities and cannot be removed unilaterally by Nomura and the liabilities are non-recourse to Nomura.


	Billions of yen
	March 31, 2013		December 31, 2013
Assets
Trading assets
Equities	¥	72	¥	107
Debt securities		86		78
Mortgage and mortgage-backed securities		24		21
Long-term loans receivable		8		8

Total	¥	190	¥	214

Liabilities
Long-term borrowings	¥	177	¥	201

Variable Interest Entities

In the normal course of business, Nomura acts as a transferor of financial assets to VIEs, and underwriter, distributor, and seller of repackaged financial instruments issued by VIEs in connection with its securitization and equity derivative activities. Nomura retains, purchases and sells variable interests in VIEs in connection with its market-making, investing and structuring activities. Nomura consolidates VIEs for which Nomura is the primary beneficiary, including those that were created to market structured securities to investors by repackaging corporate convertible securities, mortgages and mortgage-backed securities. Certain VIEs used in connection with Nomura’s aircraft leasing business as well as other purposes are consolidated. Nomura also consolidates certain investment funds, which are VIEs, and for which Nomura is the primary beneficiary.

The following table presents the classification of consolidated VIEs’ assets and liabilities in these consolidated financial statements. The assets of a consolidated VIE may only be used to settle obligations of that VIE. Creditors do not have any recourse to Nomura beyond the assets held in the VIEs.


	Billions of yen
	March 31, 2013		December 31, 2013
Consolidated VIE assets
Cash and cash equivalents	¥	13	¥	16
Trading assets
Equities		353		293
Debt securities		200		178
Mortgage and mortgage-backed securities		138		68
Derivatives		3		2
Private equity investments		1		1
Securities purchased under agreements to resell		12		18
Office buildings, land, equipment and facilities		17		4
Other⁽¹⁾		64		72

Total	¥	801	¥	652

Consolidated VIE liabilities
Trading liabilities
Debt securities	¥	6	¥	14
Derivatives		15		15
Securities sold under agreements to repurchase		4		17
Borrowings
Long-term borrowings		458		351
Other		7		6

Total	¥	490	¥	403

(1)

Includes aircraft purchase deposits of ¥16 billion as of March 31, 2013 and ¥11 billion as of December 31, 2013. In relation to these aircraft purchase deposits, certain of these SPEs have commitments to purchase aircraft. See Note 16 “Commitments, contingencies and guarantees” for further information.

Nomura also holds variable interests in VIEs where Nomura is not the primary beneficiary. Nomura’s variable interests in such VIEs include senior and subordinated debt, residual interests, and equity interests associated with commercial and residential mortgage-backed and other asset-backed securitizations and structured financings, equity interests in VIEs which were formed primarily to acquire high yield leveraged loans and other lower investment grade debt obligations, residual interests in operating leases for aircraft held by VIEs, and loans and investments in VIEs that acquire operating businesses.

The following tables present the carrying amount of variable interests of unconsolidated VIEs and maximum exposure to loss associated with these variable interests. Maximum exposure to loss does not reflect Nomura’s estimate of the actual losses that could result from adverse changes, nor does it reflect the economic hedges Nomura enters into to reduce its exposure. The risks associated with VIEs in which Nomura is involved are limited to the amount recorded in the consolidated balance sheets, the amount of commitments and financial guarantees and the notional amount of the derivative instruments. Nomura believes the notional amount of derivative instruments generally exceeds the amount of actual risk.


	Billions of yen
	March 31, 2013
	Carrying amount of variable interests				Maximum exposure to loss to unconsolidated VIEs
	Assets		Liabilities		Maximum exposure to loss to unconsolidated VIEs
Trading assets and liabilities
Equities	¥	65	¥	—	¥	65
Debt securities		173		—		173
Mortgage and mortgage-backed securities		2,843		—		2,843
Investment trust funds and other		161		—		161
Derivatives		0		—		18
Private equity investments		28		—		28
Loans
Short-term loans		7		—		7
Long-term loans		82		—		82
Other		4		—		4
Commitments to extend credit and other guarantees		—		—		33

Total	¥	3,363	¥	—	¥	3,414


	Billions of yen
	December 31, 2013
	Carrying amount of variable interests				Maximum exposure to loss to unconsolidated VIEs
	Assets		Liabilities		Maximum exposure to loss to unconsolidated VIEs
Trading assets and liabilities
Equities	¥	77	¥	—	¥	77
Debt securities		203		—		203
Mortgage and mortgage-backed securities		2,414		—		2,414
Investment trust funds and other		407		—		407
Derivatives		0		—		4
Private equity investments		25		—		25
Loans
Short-term loans		13		—		13
Long-term loans		142		—		142
Other		4		—		4
Commitments to extend credit and other guarantees		—		—		44

Total	¥	3,285	¥	—	¥	3,333

7. Financing receivables:

In the normal course of business, Nomura extends financing to clients primarily in the form of collateralized agreements such as reverse repurchase agreements and securities borrowing transactions and loans. These financing receivables are recognized as assets on Nomura’s consolidated balance sheets and provide a contractual right to receive money either on demand or on future fixed or determinable dates.

Collateralized agreements

Collateralized agreements consist of reverse repurchase agreements disclosed as Securities purchased under agreements to resell and securities borrowing transactions disclosed as Securities borrowed in the consolidated balance sheets, including those executed under Gensaki Repo agreements. Reverse repurchase agreements and securities borrowing transactions principally involve the buying of government and government agency securities from customers under agreements that also require Nomura to resell these securities to those customers. Nomura monitors the value of the underlying securities on a daily basis to the related receivables, including accrued interest, and requests or returns additional collateral when appropriate. Reverse repurchase agreements and securities borrowing transactions are generally recorded in the consolidated balance sheets at the amount at which the securities are purchased with applicable accrued interest. No allowance for credit losses is generally recorded on these transactions due to the strict collateralization requirements.

Loans receivable

The key types of loans receivable recognized by Nomura are loans at banks, short-term secured margin loans, inter-bank money market loans and corporate loans.

Loans at banks include both retail and commercial secured and unsecured loans extended by licensed banking entities within Nomura such as The Nomura Trust & Banking Co., Ltd. and Nomura Bank International plc. For both retail and commercial loans secured by real estate or securities, Nomura is exposed to the risk of a decline in the value of the underlying collateral. Loans at banks also include unsecured commercial loans provided to investment banking clients for relationship purposes. Nomura is exposed to risk of default of the counterparty, although these counterparties usually have high credit ratings. Where loans are secured by guarantees, Nomura is also exposed to the risk of default by the guarantor.

Short-term secured margin loans are loans provided to clients in connection with securities brokerage business. These loans provide funding for clients in order to purchase securities. Nomura requests initial margin in the form of acceptable collateral securities or deposits against these loans and holds the purchased securities as collateral through the life of the loans. If the value of the securities declines by more than specified amounts, Nomura can make additional margin calls in order to maintain a specified ratio of loan-to-value (“LTV”) ratio. For these reasons, the risk to Nomura of providing these loans is limited.

Inter-bank money market loans are loans to financial institutions in the inter-bank money market, where overnight and intra-day financings are traded through money market dealers. The risk to Nomura of making these loans is not significant as only qualified financial institutions can participate in these markets and these loans are usually overnight or short-term in nature.

Corporate loans are primarily commercial loans provided to corporate clients extended by non-licensed banking entities within Nomura. Corporate loans include loans secured by real estate or securities, as well as unsecured commercial loans provided to investment banking clients for relationship purposes. The risk to Nomura of making these loans is similar to those risks arising from commercial loans reported in loans at banks.

In addition to the loans above, Nomura has advances to affiliated companies which are loans provided to related parties of Nomura. As these loans are generally not secured, Nomura is exposed to the risk of default of the counterparty.

The following tables present a summary of loans receivable reported within Loans receivable or Investments in and advances to affiliated companies in the consolidated balance sheets by portfolio segment.


	Millions of yen
	March 31, 2013
	Carried at amortized cost		Carried at fair value⁽¹⁾		Total
Loans receivable
Loans at banks	¥	263,608	¥	153	¥	263,761
Short-term secured margin loans		288,574		—		288,574
Inter-bank money market loans		76,968		—		76,968
Corporate loans		422,295		523,896		946,191

Total loans receivable	¥	1,051,445	¥	524,049	¥	1,575,494

Advances to affiliated companies		12,376		—		12,376

Total	¥	1,063,821	¥	524,049	¥	1,587,870


	Millions of yen
	December 31, 2013
	Carried at amortized cost		Carried at fair value⁽¹⁾		Total
Loans receivable
Loans at banks	¥	272,107	¥	56	¥	272,163
Short-term secured margin loans		374,368		—		374,368
Inter-bank money market loans		64,172		—		64,172
Corporate loans		458,652		303,820		762,472

Total loans receivable	¥	1,169,299	¥	303,876	¥	1,473,175

Advances to affiliated companies		11,990		—		11,990

Total	¥	1,181,289	¥	303,876	¥	1,485,165

(1)	Includes loans receivable and loan commitments carried at fair value through election of the fair value option.

There were no significant purchases or sales of loans receivable and no reclassifications of loans receivable to trading assets during the nine and three months ended December 31, 2012.

The amount of purchases of secured corporate loans during the nine and three months ended December 31, 2013, were ¥56,598 million and ¥19,940 million, respectively. During the same period, there were no significant sales of loans receivable and no reclassifications of loans receivable to trading assets.

Allowance for loan losses

Management establishes an allowance for loan losses for loans carried at amortized cost which reflects management’s best estimate of probable losses incurred. The allowance for loan losses which is reported in the consolidated balance sheets within Allowance for doubtful accounts comprises two components:

•

A specific component for loans which have been individually evaluated for impairment; and

•

A general component for loans which, while not individually evaluated for impairment, have been collectively evaluated for impairment based on historical loss experience

The specific component of the allowance for loan losses reflects probable losses incurred within loans which have been individually evaluated for impairment. A loan is defined as being impaired when, based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected. Factors considered by management in determining impairment include an assessment of the ability of borrowers to pay by considering various factors such as the nature of the loan, prior loan loss experience, current economic conditions, the current financial situation of the borrower and the fair value of any underlying collateral. Loans that experience insignificant payment delays or insignificant payment shortfalls are not classified as impaired. The impairment is measured on a loan by loan basis by adjusting the carrying value of the loan to either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the fair value of the collateral if the loan is collateral dependent.

The general component of the allowance for loan losses is for loans not individually evaluated for impairment and includes judgment about collectability based on available information at the balance sheet date and the uncertainties inherent in those underlying assumptions. The allowance is based on historical loss experience adjusted for qualitative factors such as current economic conditions.

While management has based its estimate of the allowance for loan losses on the best information available, future adjustments to the allowance for loan losses may be necessary as a result of changes in the economic environment or variances between actual results and original assumptions.

Loans are charged-off when Nomura determines that the loans are uncollectible. This determination is based on factors such as the occurrence of significant changes in the borrower’s financial position such that the borrower can no longer pay the obligation or that the proceeds from collateral will not be sufficient to pay the loans.

The following tables present changes in the allowance for losses for the nine and three months ended December 31 30, 2012 and 2013.


	Millions of yen
	Nine months ended December 31, 2012
	Allowance for loan losses
	Loans at banks			Short-term secured margin loans			Inter-bank money market loans		Corporate loans			Advances to affiliated companies			Subtotal			Allowance for receivables other than loans			Total allowance for doubtful accounts
Opening balance	¥	552		¥	24		¥	—	¥	2,758		¥	51		¥	3,385		¥	1,503		¥	4,888
Provision for losses		211			(2	)		—		(1,002	)		(18	)		(811	)		246			(565	)
Charge-offs		(1	)		(11	)		—		(26	)		—			(38	)		—			(38	)
Other⁽¹⁾		—			(0	)		—		64			—			64			12			76

Ending balance	¥	762		¥	11		¥	—	¥	1,794		¥	33		¥	2,600		¥	1,761		¥	4,361


	Millions of yen
	Nine months ended December 31, 2013
	Allowance for loan losses
	Loans at banks			Short-term secured margin loans			Inter-bank money market loans		Corporate loans			Advances to affiliated companies			Subtotal			Allowance for receivables other than loans			Total allowance for doubtful accounts

Opening balance	¥	789		¥	26		¥	—	¥	95		¥	29		¥	939		¥	1,319		¥	2,258
Provision for losses		(90	)		(6	)		—		0			(28	)		(124	)		1,250			1,126
Charge-offs		(2	)		—			—		—			—			(2	)		(134	)		(136	)
Other⁽¹⁾		(0	)		—			—		0			—			0			39			39

Ending balance	¥	697		¥	20		¥	—	¥	95		¥	1		¥	813		¥	2,474		¥	3,287


	Millions of yen
	Three months ended December 31, 2012
	Allowance for loan losses
	Loans at banks			Short-term secured margin loans			Inter-bank money market loans		Corporate loans			Advances to affiliated companies			Subtotal			Allowance for receivables other than loans			Total allowance for doubtful accounts

Opening balance	¥	762		¥	13		¥	—	¥	1,746		¥	32		¥	2,553		¥	1,581		¥	4,134
Provision for losses		(0	)		(2	)		—		(127	)		1			(128	)		157			29
Charge-offs		—			(0	)		—		(3	)		—			(3	)		—			(3	)
Other⁽¹⁾		—			0			—		178			—			178			23			201

Ending balance	¥	762		¥	11		¥	—	¥	1,794		¥	33		¥	2,600		¥	1,761		¥	4,361


	Millions of yen
	Three months ended December 31, 2013
	Allowance for loan losses
	Loans at banks			Short-term secured margin loans			Inter-bank money market loans		Corporate loans			Advances to affiliated companies			Subtotal			Allowance for receivables other than loans			Total allowance for doubtful accounts

Opening balance	¥	697		¥	19		¥	—	¥	125		¥	1		¥	842		¥	2,363		¥	3,205
Provision for losses		—			1			—		(30	)		—			(29	)		83			54
Charge-offs		—			—			—		—			—			—			—			—
Other⁽¹⁾		—			—			—		0			—			0			28			28

Ending balance	¥	697		¥	20		¥	—	¥	95		¥	1		¥	813		¥	2,474		¥	3,287

(1)	Includes the effect of foreign exchange movements.

The following tables present the allowance for loan losses and loans by impairment methodology and type of loans as of March 31, 2013 and December 31, 2013.


	Millions of yen
	March 31, 2013
	Loans at banks		Short-term secured margin loans		Inter-bank money market loans		Corporate loans		Advances to affiliated companies		Total
Allowance by impairment methodology
Evaluated individually	¥	6	¥	—	¥	—	¥	7	¥	—	¥	13
Evaluated collectively		783		26		—		88		29		926

Total allowance for loan losses	¥	789	¥	26	¥	—	¥	95	¥	29	¥	939

Loans by impairment methodology
Evaluated individually	¥	76	¥	83,399	¥	76,968	¥	412,675	¥	5,595	¥	578,713
Evaluated collectively		263,532		205,175		—		9,620		6,781		485,108

Total loans	¥	263,608	¥	288,574	¥	76,968	¥	422,295	¥	12,376	¥	1,063,821


	Millions of yen
	December 31, 2013
	Loans at banks		Short-term secured margin loans		Inter-bank money market loans		Corporate loans		Advances to affiliated companies		Total
Allowance by impairment methodology
Evaluated individually	¥	3	¥	—	¥	—	¥	7	¥	—	¥	10
Evaluated collectively		694		20		—		88		1		803

Total allowance for loan losses	¥	697	¥	20	¥	—	¥	95	¥	1	¥	813

Loans by impairment methodology
Evaluated individually	¥	4,245	¥	90,519	¥	64,172	¥	448,793	¥	6,152	¥	613,881
Evaluated collectively		267,862		283,849		—		9,859		5,838		567,408

Total loans	¥	272,107	¥	374,368	¥	64,172	¥	458,652	¥	11,990	¥	1,181,289

Nonaccrual and past due loans

Loans which are individually evaluated as impaired are assessed for nonaccrual status in accordance with Nomura’s policy. When it is determined to suspend interest accrual as a result of an assessment, any accrued but unpaid interest is reversed. Loans are generally only returned to an accrual status if the loan is brought contractually current, i.e. all overdue principal and interest amounts are paid. In limited circumstances, a loan which has not been brought contractually current will also be returned to an accrual status if all principal and interest amounts contractually due are reasonably assured of repayment within a reasonable period of time or there has been a sustained period of repayment performance by the borrower.

As of March 31, 2013, there were ¥5,855 million of loans which were on a nonaccrual status, primarily secured corporate loans. The amount of loans which were 90 days past due was not significant.

As of December 31, 2013, there were ¥6,261 million of loans which were on a nonaccrual status, primarily secured corporate loans. The amount of loans which were 90 days past due was not significant.

Once a loan is impaired and placed on a nonaccrual status, interest income is subsequently recognized using the cash basis method.

Loan impairment and troubled debt restructurings

In the ordinary course of business, Nomura may choose to recognize impairment and also restructure a loan classified as held for investment either because of financial difficulties of the borrower, or simply as a result of market conditions or relationship reasons. A troubled debt restructuring (“TDR”) occurs when Nomura (as lender) for economic or legal reasons related to the borrower’s financial difficulties grants a concession to the borrower that Nomura would not otherwise consider.

Any loan being restructured under a TDR will generally already be identified as impaired with an applicable allowance recognized in the allowance for loan losses. If not (for example if the loan is collectively assessed for impairment with other loans), the restructuring of the loan under a TDR will immediately result in the loan as being classified as impaired. An impairment loss for a loan restructuring under a TDR which only involves modification of the loan’s terms (rather than receipt of assets in full or partial settlement) is calculated in the same way as any other impaired loan. Assets received in full or partial satisfaction of a loan in a TDR are recognized at fair value.

As of March 31, 2013, the amount of loans which were classified as impaired but against which no allowance for loan losses had been recognized was not significant. For impaired loans with a related allowance, the amount of recorded investment, the total unpaid principal balance and the related allowance was not significant.

As of December 31, 2013, the amount of loans which were classified as impaired but against which no allowance for loan losses had been recognized was not significant. For impaired loans with a related allowance, the amount of recorded investment, the total unpaid principal balance and the related allowance was not significant.

The amount of TDRs which occurred during the nine and three months ended December 31, 2012 and 2013, was not significant.

Credit quality indicators

Nomura is exposed to credit risks deriving from a decline in the value of loans or a default caused by deterioration of creditworthiness or bankruptcy of the borrower. Nomura’s risk management framework for such credit risks is based on a risk assessment through an internal credit rating process, in depth pre-financing credit analysis of each individual loan and continuous post-financing monitoring of borrower’s creditworthiness. Loans considered as collateralized transactions are not subject to an internal credit rating process as Nomura monitors the value of posted collateral closely and understands means to prevent potential losses.

The following tables present an analysis of each class of loans not carried at fair value using Nomura’s internal ratings or equivalent credit quality indicators applied by subsidiaries as of March 31, 2013 and December 31, 2013.


	Millions of yen
	March 31, 2013
	AAA-BBB		BB-CCC		CC-D		Others⁽¹⁾		Total
Secured loans at banks	¥	105,199	¥	30,826	¥	—	¥	33,208	¥	169,233
Unsecured loans at banks		93,266		1,103		6		—		94,375
Short-term secured margin loans		—		—		—		288,574		288,574
Secured inter-bank money market loans		1,968		—		—		—		1,968
Unsecured inter-bank money market loans		75,000		—		—		—		75,000
Secured corporate loans		220,189		164,205		7,969		3,570		395,933
Unsecured corporate loans		—		26,362		—		—		26,362
Advances to affiliated companies		6,781		527		—		5,068		12,376

Total	¥	502,403	¥	223,023	¥	7,975	¥	330,420	¥	1,063,821


	Millions of yen
	December 31, 2013
	AAA-BBB		BB-CCC		CC-D		Others⁽¹⁾		Total
Secured loans at banks	¥	107,940	¥	24,874	¥	—	¥	32,250	¥	165,064
Unsecured loans at banks		106,982		59		2		—		107,043
Short-term secured margin loans		—		—		—		374,368		374,368
Secured inter-bank money market loans		11,172		—		—		—		11,172
Unsecured inter-bank money market loans		53,000		—		—		—		53,000
Secured corporate loans		249,654		167,493		6,163		1,294		424,604
Unsecured corporate loans		—		30,067		—		3,981		34,048
Advances to affiliated companies		5,838		5,857		—		295		11,990

Total	¥	534,586	¥	228,350	¥	6,165	¥	412,188	¥	1,181,289

(1)	Relate to collateralized exposures where a specified ratio of LTV is maintained.

Nomura reviews internal counterparty credit ratings at least once a year by using available borrower’s credit information including financial statements and other information. Internal counterparty credit ratings are also reviewed more frequently for high-risk borrowers or problematic exposures and any significant credit event of a counterparty will trigger an immediate credit review process.

8. Leases:

Lessor

Nomura leases office buildings and aircraft in Japan and overseas. These leases are classified as operating leases and the related assets are stated at cost, net of accumulated depreciation, except for land, which is stated at cost in the consolidated balance sheets and reported within Other assets—Office buildings, land, equipment and facilities.

The following table presents the types of assets which Nomura leases under operating leases:


	Millions of yen
	March 31, 2013							December 31, 2013
	Cost		Accumulated depreciation			Net carrying amount		Cost		Accumulated depreciation			Net carrying amount
Real estate⁽¹⁾	¥	3,426	¥	(1,215	)	¥	2,211	¥	3,426	¥	(1,304	)	¥	2,122
Aircraft		17,872		(1,332	)		16,540		5,663		(1,218	)		4,445

Total	¥	21,298	¥	(2,547	)	¥	18,751	¥	9,089	¥	(2,522	)	¥	6,567

(1)	The amounts of cost, accumulated depreciation and net carrying amount are including those for the portion utilized by Nomura.

Nomura recognized rental income of ¥58,772 million and ¥19,012 million for the nine and three months ended December 31, 2012, respectively, and ¥1,369 million and ¥370 million for the nine and three months ended December 31, 2013, respectively. These are included in the consolidated statements of income within Revenue—Other.

The future minimum lease payments to be received on non-cancellable operating leases as of December 31, 2013 were ¥1,746 million and these future minimum payments to be received are scheduled as below:


	Millions of yen
			Years of receipt
	Total		Less than 1 year		1 to 2 years		2 to 3 years		3 to 4 years		4 to 5 years		More than 5 years
Future minimum lease payments to be received	¥	1,746	¥	506	¥	401	¥	397	¥	149	¥	63	¥	230

Lessee

Nomura leases its office space, certain employees’ residential facilities and other facilities in Japan and overseas primarily under cancelable operating lease agreements which are customarily renewed upon expiration. Nomura also leases certain equipment and facilities under non-cancelable operating leases. Rental expenses, net of sublease rental income, for the nine and three months ended December 31, 2012 were ¥34,547 million and ¥11,089 million, respectively, and for the nine and three months ended December 31, 2013 were ¥35,250 million and ¥11,674 million, respectively.

The following table presents future minimum lease payments under non-cancelable operating leases having initial or remaining terms in excess of one year as of December 31, 2013:


	Millions of yen
	December 31, 2013
Total future minimum lease payments	¥	156,823
Less: Sublease rental income		(8,903	)

Net future minimum lease payments	¥	147,920

The future minimum lease payments above are scheduled as below as of December 31, 2013:


	Millions of yen
			Years of payment
	Total		Less than 1 year		1 to 2 years		2 to 3 years		3 to 4 years		4 to 5 years		More than 5 years
Future minimum lease payments	¥	156,823	¥	18,975	¥	17,304	¥	12,994	¥	12,217	¥	11,113	¥	84,220

Nomura leases certain equipment and facilities in Japan and overseas under capital lease agreements. If the lease is classified as a capital lease, Nomura recognizes it at the lower of the fair value or present value of minimum lease payments, which is reported within Other assets—Office buildings, land, equipment and facilities in the consolidated balance sheets. The balances of capital lease assets as of March 31, 2013 and December 31, 2013 were ¥24,170 million and ¥29,358 million, respectively.

The following table presents future minimum lease payments under capital leases as of December 31, 2013:


	Millions of yen
	December 31, 2013
Total future minimum lease payments	¥	65,077
Less: Amount representing interest		(34,611	)

Present value of net future minimum lease payments	¥	30,466

The future minimum lease payments above are scheduled as below as of December 31, 2013:


	Millions of yen
			Years of payment
	Total		Less than 1 year		1 to 2 years		2 to 3 years		3 to 4 years		4 to 5 years		More than 5 years
Future minimum lease payments	¥	65,077	¥	614	¥	2,578	¥	4,242	¥	4,213	¥	4,050	¥	49,380

Certain leases contain renewal options or escalation clauses providing for increased rental payments based upon maintenance, utilities and tax increases.

9. Business combinations:

During the year ended March 31, 2012, Nomura acquired additional shares of common stock issued by one of its affiliated companies, Nomura Land and Building Co., Ltd. (“NLB”), converting NLB into a consolidated subsidiary of Nomura.

Revenue—Other in the consolidated statements of income for the nine and three months ended December 31, 2012 include real estate sales of ¥182,649 million and ¥48,081 million respectively, generated by Nomura Real Estate Holdings, Inc. (“NREH”) which was a subsidiary of NLB. Revenues are recognized when the sales have closed, the buyer’s initial and continuing investments are adequate to demonstrate a commitment to pay for the real estate and Nomura does not have substantial continuing involvement in the real estate. The costs of real estate sales corresponding to the revenues were ¥177,446 million and ¥64,212 million respectively, reported within Non-interest expenses—Other in the consolidated statements of income.

Nomura disposed of part of its investment in NREH in March 2013 and subsequently accounts for its remaining investment using the equity method of accounting. Following deconsolidation of NREH, real estate sales and costs of real estate are no longer separately reported on a gross basis in the consolidated statements of income within Revenue—Other and Non-interest expenses—Other, respectively, and Nomura’s share of net income of NREH are reported within Revenue—Other from April 1, 2013.

10. Other assets—Other / Other liabilities:

The following table sets forth Other assets—Other and Other liabilities in the consolidated balance sheets by type.


	Millions of yen
	March 31, 2013		December 31, 2013
Other assets—Other:
Securities received as collateral	¥	47,739	¥	304,217
Goodwill and other intangible assets⁽¹⁾		115,661		120,503
Deferred tax assets		145,602		81,734
Investments in equity securities for other than operating purposes		71,813		140,392
Other		221,344		218,302

Total	¥	602,159	¥	865,148

Other liabilities:
Obligation to return securities received as collateral	¥	47,739	¥	304,217
Accrued income taxes		56,353		36,764
Other accrued expenses and provisions		402,192		404,620
Other⁽²⁾		471,879		515,729

Total	¥	978,163	¥	1,261,330

(1)

For the nine months ended December 31, 2012, Nomura recognized an impairment loss on goodwill of ¥8,293 million within the Wholesale segment. This is due to a decline in fair value of a reporting unit in the Wholesale segment caused by the prolonged economic downturn. For the nine months ended December 31, 2013, Nomura recognized impairment loss on goodwill of ¥2,047 million within Other in Nomura’s segment information. This is due to a decline in fair value of a reporting unit caused by the decrease in expected cash flows arising from the changes in the economic environment. These impairment losses were recorded within Non-interest expenses—Other in the consolidated statements of income. The fair values were determined based on a DCF method.

(2)

Includes the liabilities relating to the investment contracts which were underwritten by the insurance subsidiary. The amounts of carrying values were ¥281,864 million and ¥273,194 million and estimated fair values were ¥285,914 million and ¥277,613 million, as of March 31, 2013 and as of December 31, 2013, respectively. Fair value is estimated by discounting future cash flows and using valuation inputs which would be generally classified in Level 3 of the fair value hierarchy.

11. Earnings per share:

A reconciliation of the amounts and the numbers used in the calculation of net income attributable to NHI shareholders per share (basic and diluted) is as follows:


	Millions of yen except per share data presented in yen
	Nine months ended December 31
	2012		2013
Basic—
Net income attributable to NHI shareholders	¥	24,812	¥	152,336
Weighted average number of shares outstanding		3,687,924,842		3,707,762,930
Net income attributable to NHI shareholders per share	¥	6.73	¥	41.09

Diluted—
Net income attributable to NHI shareholders	¥	24,808	¥	152,291
Weighted average number of shares outstanding		3,758,558,474		3,823,212,194
Net income attributable to NHI shareholders per share	¥	6.60	¥	39.83


	Millions of yen except per share data presented in yen
	Three months ended December 31
	2012		2013
Basic—
Net income attributable to NHI shareholders	¥	20,112	¥	48,329
Weighted average number of shares outstanding		3,699,163,813		3,711,050,042
Net income attributable to NHI shareholders per share	¥	5.44	¥	13.02

Diluted—
Net income attributable to NHI shareholders	¥	20,148	¥	48,305
Weighted average number of shares outstanding		3,780,971,820		3,818,581,012
Net income attributable to NHI shareholders per share	¥	5.33	¥	12.65

Net income attributable to NHI shareholders is adjusted to reflect the decline in Nomura’s equity share of earnings of subsidiaries and affiliates for the nine and three months ended December 31, 2012 and 2013, arising from options to purchase common shares issued by subsidiaries and affiliates.

The weighted average number of shares used in the calculation of diluted EPS reflects the increase in potential issuance of common shares arising from stock-based compensation plans issued by the Company, which would have minimal impact on EPS for the nine and three months ended December 31, 2012 and 2013.

Antidilutive stock options to purchase 16,616,700 and 13,787,300 common shares were not included in the computation of diluted EPS for the nine and three months ended December 31, 2012, respectively. Antidilutive stock options to purchase 8,974,500 common shares were not included in the computation of diluted EPS for the nine and three months ended December 31, 2013.

12. Employee benefit plans:

Nomura provides various pension plans and other post-employment benefits which cover certain employees worldwide. In addition, Nomura provides health care benefits to certain active and retired employees through its Nomura Securities Health Insurance Society.

Net periodic benefit cost

The net periodic benefit cost of the defined benefit plans includes the following components.

Japanese entities’ plans—


	Millions of yen
	Nine months ended December 31
	2012			2013
Service cost	¥	7,036		¥	6,328
Interest cost		3,223			2,581
Expected return on plan assets		(3,064	)		(3,728	)
Amortization of net actuarial losses		2,606			2,004
Amortization of prior service cost		(1,158	)		(861	)

Net periodic benefit cost	¥	8,643		¥	6,324


	Millions of yen
	Three months ended December 31
	2012			2013
Service cost	¥	2,428		¥	2,091
Interest cost		1,075			860
Expected return on plan assets		(1,021	)		(1,242	)
Amortization of net actuarial losses		868			668
Amortization of prior service cost		(387	)		(287	)

Net periodic benefit cost	¥	2,963		¥	2,090

Nomura also recognized net periodic benefit cost of plans other than Japanese entities’ plans, which are not significant.

13. Restructuring initiatives:

Nomura undertook group-wide restructuring initiatives primarily focusing on the Wholesale Division to improve profitability, select accretive businesses aligned with market conditions and allocate business resources to growth regions accordingly since the year ended March 31, 2012. These restructuring initiatives had been completed by the three months ended September 30, 2013 other than settlements.

As a result of these restructuring initiatives, Nomura recognized ¥12,769 million of restructuring costs in total and these were primarily included within Non-interest expenses—Compensation and benefits in the consolidated statements of income. Liabilities relating to restructuring costs including currency translation adjustments were ¥2,148 million and ¥139 million as of March 31 and December 31, 2013, respectively. For the nine months ended December 31, 2013, ¥2,096 million had been settled.

In addition to the restructuring initiatives described above, Nomura has commenced a further restructuring program focusing on the Wholesale Division to revise business models and increase business efficiencies since the three months ended September 30, 2012.

As a result of the restructuring program, Nomura recognized ¥2,515 million and ¥70 million of restructuring costs for the nine and three months ended December 31, 2013, respectively and, in total, ¥18,103 million as of December 31, 2013. These were primarily included within Non-interest expenses—Compensation and benefits in the consolidated statements of income. Liabilities relating to restructuring costs including currency translation adjustments were ¥8,165 million and ¥4,532 million as of March 31 and December 31, 2013, respectively. For the nine months ended December 31, 2013, ¥6,163 million had been settled.

This restructuring program is scheduled to be completed during the year ending March 31, 2014, and the current expected costs to be incurred going forward would not be material.

14. Income taxes:

Our effective statutory tax rates were 38% for the nine and three months ended December 31, 2012 and 2013, respectively. Due to the revisions of domestic tax laws during the third quarter ended December 31, 2011, our effective statutory tax rates are 38% for the fiscal years beginning between April 1, 2012 and March 31, 2015, and 36% thereafter.

For the nine months ended December 31, 2012, the difference between the effective statutory tax rate of 38% and the effective tax rate of 83.1% was mainly due to non-deductible expenses, different tax rates and changes in effective statutory tax rates applicable to income (loss) of foreign subsidiaries, whereas non-taxable revenues and a decrease in valuation allowance of foreign subsidiaries reduced the effective tax rate.

For the three months ended December 31, 2012, the difference between the effective statutory tax rate of 38% and the effective tax rate of 99.3% was mainly due to non-deductible expenses, and an increase in valuation allowance of foreign subsidiaries, whereas non-taxable revenues reduced the effective tax rate.

For the nine months ended December 31, 2013, the difference between the effective statutory tax rate of 38% and the effective tax rate of 43.7% was mainly due to non-deductible expenses, different tax rates and changes in effective statutory tax rates applicable to income (loss) of foreign subsidiaries, whereas non-taxable revenues and changes in domestic tax laws reduced the effective tax rate.

For the three months ended December 31, 2013, the difference between the effective statutory tax rate of 38% and the effective tax rate of 43.5% was mainly due to non-deductible expenses, and an increase in valuation allowance of foreign subsidiaries, whereas non-taxable revenues and changes in domestic tax laws reduced the effective tax rate.

15. Other comprehensive income (loss):

Changes in accumulated other comprehensive income (loss) are as follows:


	Millions of yen
	Nine months ended December 31, 2013
	Balance at beginning of year			Other comprehensive income (loss) before reclassifications		Reclassifications out of accumulated other comprehensive income (loss)⁽¹⁾			Net change during the period		Balance at end of period
Cumulative translation adjustments	¥	(38,875	)	¥	83,636	¥	(114	)	¥	83,522	¥	44,647
Pension liability adjustment		(28,518	)		1,166		743			1,909		(26,609	)
Net unrealized gain on non-trading securities		9,998			4,186		(861	)		3,325		13,323

Total	¥	(57,395	)	¥	88,988	¥	(232	)	¥	88,756	¥	31,361

(1)	Reclassifications out of accumulated other comprehensive income (loss) are as follows:


	Millions of yen
	Nine months ended December 31, 2013
	Reclassifications out of accumulated other comprehensive income (loss)			Affected line items in consolidated statements of income
Net unrealized gain on non-trading securities:
				Gain (loss) on investments in equity securities
	¥	1,663		Gain (loss) on investments in equity securities
		(503	)	Income tax expense

		1,160		Net income

		(299	)	Net income attributable to noncontrolling interests
	¥	861		Net income attributable to NHI shareholders


	Millions of yen
	Three months ended December 31, 2013
	Balance at beginning of period			Other comprehensive income (loss) before reclassifications		Reclassifications out of accumulated other comprehensive income (loss)⁽¹⁾			Net change during the period		Balance at end of period
Cumulative translation adjustments	¥	(11,973	)	¥	56,649	¥	(29	)	¥	56,620	¥	44,647
Pension liability adjustment		(27,216	)		359		248			607		(26,609	)
Net unrealized gain on non-trading securities		10,610			2,679		34			2,713		13,323

Total	¥	(28,579	)	¥	59,687	¥	253		¥	59,940	¥	31,361

(1)	Reclassifications out of accumulated other comprehensive income (loss) are as follows:


	Millions of yen
	Three months ended December 31, 2013
	Reclassifications out of accumulated other comprehensive income (loss)			Affected line items in consolidated statements of income
Net unrealized gain on non-trading securities:
	¥	(45	)	Gain (loss) on investments in equity securities
		(1	)	Income tax expense

		(46	)	Net income

		12		Net income attributable to noncontrolling interests
	¥	(34	)	Net income attributable to NHI shareholders

See Note 5. “Non-trading securities” for further information.

16. Commitments, contingencies and guarantees:

Commitments—

Credit and investment commitments

In connection with its banking and financing activities, Nomura provides commitments to extend credit which generally have fixed expiration dates. In connection with its investment banking activities, Nomura enters into agreements with clients under which Nomura commits to underwrite notes that may be issued by clients. The outstanding commitments under these agreements are included in below commitments to extend credit.

Nomura has commitments to invest in various partnerships and other entities, primarily in connection with its merchant banking activities, and also has commitments to provide financing for investments related to these partnerships. The outstanding commitments under these agreements are included in below commitments to invest in partnerships.

Certain consolidated VIEs which are engaged in the aircraft leasing business have commitments to purchase aircraft. The outstanding commitments under these agreements are included in below commitments to purchase aircraft.

These commitments outstanding were as follows:


	Millions of yen
	March 31, 2013		December 31, 2013
Commitments to extend credit	¥	369,988	¥	498,943
Commitments to invest in partnerships		29,974		27,099
Commitments to purchase aircraft		30,143		10,149

As of December 31, 2013, these commitments had the following maturities:


	Millions of yen
			Years to Maturity
	Total contractual amount		Less than 1 year		1 to 3 years		3 to 5 years		More than 5 years
Commitments to extend credit	¥	498,943	¥	102,934	¥	66,044	¥	177,101	¥	152,864
Commitments to invest in partnerships		27,099		6,268		1,175		864		18,792
Commitments to purchase aircraft		10,149		10,149		—		—		—

The contractual amounts of these commitments to extend credit represent the amounts at risk but only if the contracts are fully drawn upon, should the counterparties default, and assuming the value of any existing collateral becomes worthless. The total contractual amount of these commitments may not represent future credit exposure or cash requirements since the commitments may expire without being drawn upon. The credit risk associated with these commitments varies depending on the clients’ creditworthiness and the value of collateral held. Nomura evaluates each client’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by Nomura upon extension of credit, is based on credit evaluation of the counterparty.

Contingencies—

Investigations, lawsuits and other legal proceedings

In the normal course of business as a global financial services entity, Nomura is involved in investigations, lawsuits and other legal proceedings and, as a result, may suffer loss from any fines, penalties or damages awarded against Nomura, any settlements Nomura chooses to make to resolve a matter, and legal and other advisory costs incurred to support and formulate a defense.

The ability to predict the outcome of these actions and proceedings is inherently difficult, particularly where claimants are seeking substantial or indeterminate damages, where investigations and legal proceedings are at an early stage, where the matters present novel legal theories or involve a large number of parties, or which take place in foreign jurisdictions with complex or unclear laws.

The Company regularly evaluates each legal proceeding and claim on a case-by-case basis in consultation with external legal counsel to assess whether an estimate of possible loss or range of loss can be made, if recognition of a liability is not appropriate. In accordance with ASC 450 “Contingencies” (“ASC 450”), the Company recognizes a liability for this risk of loss arising on each individual matter when a loss is probable and the amount of such loss or range of loss can be reasonably estimated. The amount recognized as a liability is reviewed at least quarterly and is revised when further information becomes available. If these criteria are not met for an individual matter, such as if an estimated loss is only reasonably possible rather than probable, no liability is recognized. However, where a material loss is reasonably possible, the Company will disclose details of the legal proceeding or claim below. Under ASC 450 an event is defined as reasonably possible if the chance of the loss to the Company is more than remote but less than probable.

The most significant actions and proceedings against Nomura are summarized below. The Company believes that, based on current information available as of the date of these consolidated financial statements, the ultimate resolution of these actions and proceedings will not be material to the Company’s financial condition. However, an adverse outcome in certain of these matters could have a material adverse effect on the consolidated statements of income or cash flows in a particular quarter or annual period.

For those significant actions and proceedings described below where the counterparty has alleged a specific amount of damages, the Company currently estimates that the reasonably possible loss for the matter would not exceed the amount specified in each case. For each of these matters, the specific amount alleged (which is the Company’s current estimate of the maximum reasonably possible loss) is indicated in the description of the matter below. For certain other significant actions and proceedings, the Company is unable to provide an estimate of the reasonably possible loss or range of reasonably possible losses because, among other reasons, (i) the proceedings are at such an early stage there is not enough information available to assess whether the stated grounds for the claim are viable; (ii) damages have not been identified by the claimant; (iii) damages are unsupported and/or exaggerated; (iv) there is uncertainty as to the outcome of pending appeals or motions; (v) there are significant legal issues to be resolved that may be dispositive, such as the applicability of statutes of limitations; and/or (vi) there are novel or unsettled legal theories underlying the claims.

In January 2008, Nomura International plc (“NIP”) was served with a tax notice issued by the tax authorities in Pescara, Italy alleging breaches by NIP of the U.K.-Italy Double Taxation Treaty of 1998 (the “Tax Notice”). The alleged breaches relate to payments to NIP of tax credits on dividends on Italian shares. The Tax Notice not only denies certain payments to which NIP claims to be entitled but also seeks reimbursement of approximately EUR 33.8 million, plus interest, already refunded. NIP continues vigorously to challenge the Pescara Tax Court’s decisions in favor of the local tax authorities. The specified amount alleged is the Company’s current estimate of the maximum reasonably possible loss from this matter.

In October 2010 and June 2012, two actions were brought against NIP, seeking recovery of payments allegedly made to NIP by Fairfield Sentry Ltd. and Fairfield Sigma Ltd. (collectively, the “Fairfield Funds”), which are now in liquidation and were feeder funds to Bernard L. Madoff Investment Securities LLC (in liquidation pursuant to the Securities Investor Protection Act in the U.S. since December 2008) (“BLMIS”). The first suit was brought by the liquidators of the Fairfield Funds. It was filed on October 5, 2010 in the Supreme Court of the State of New York, but was subsequently removed to the U.S. Bankruptcy Court, where it is presently pending. The second suit was brought by the Trustee for the liquidation of BLMIS (the “Madoff Trustee”). NIP was added as a defendant in June 2012 when the Madoff Trustee filed an amended complaint in the U.S. Bankruptcy Court. Both actions seek to recover approximately $35 million. The $35 million amount is Nomura’s current estimate of the maximum reasonably possible loss from this matter.

In March 2011, PT Bank Mutiara Tbk. (“Bank Mutiara”) commenced proceedings in the Commercial Court of the Canton of Zurich against a special purpose company (“SPC”) established at the request of NIP (the main operating subsidiary of Nomura in the U.K.). The SPC is included as part of NIP’s consolidated accounts. These are proceedings to challenge the SPC’s rights over approximately $156 million in an account held in Switzerland. The SPC has a security interest over the money pursuant to a loan facility with Telltop Holdings Limited, a third party company. Telltop Holdings Limited is currently in liquidation. The SPC does not believe that Bank Mutiara has any enforceable security interest over the funds and is seeking release of the monies.

In April 2011, the Federal Home Loan Bank of Boston (“FHLB-Boston”) commenced proceedings in the Superior Court of Massachusetts against numerous issuers, sponsors and underwriters of residential mortgage-backed securities (“MBS”), and their controlling persons, including Nomura Asset Acceptance Corporation (“NAAC”), Nomura Credit & Capital, Inc. (“NCCI”), Nomura Securities International, Inc. (“NSI”) and Nomura Holding America Inc. (“NHA”). The action alleges that FHLB-Boston purchased residential MBS issued by NAAC for which the offering materials contained untrue statements or omitted material facts concerning the underwriting standards used by the original lenders and the characteristics of the loans underlying the securities. FHLB-Boston seeks rescission of its purchases or compensatory damages pursuant to state law. FHLB-Boston alleges that it purchased certificates in four offerings issued by NAAC but does not specify the amount of its purchases or the amount of any alleged losses. Due to the lack of information at this early stage of the litigation and the uncertainties involved, including lack of information concerning the alleged purchases by the plaintiff, the Company cannot provide an estimate of reasonably possible loss related to this matter at this time.

In July 2011, the National Credit Union Administration Board (“NCUA”) commenced proceedings in the United States District Court for the Central District of California as liquidating agent of Western Corporate Federal Credit Union (“WesCorp”) against various issuers, sponsors and underwriters of residential MBS purchased by WesCorp. The complaint alleges that WesCorp purchased residential MBS issued by NAAC and Nomura Home Equity Loan Inc. (“NHEL”), among others, for which the offering materials contained untrue statements or omitted material facts concerning the underwriting standards used by the original lenders. The complaint alleges that WesCorp purchased certificates in two offerings in the original principal amount of approximately $83 million and seeks rescission of its purchases or compensatory damages. The court has dismissed NCUA’s claims against NHEL and NCUA has filed a notice of appeal. Following the filing of an amended complaint by NCUA, NAAC has filed a motion to dismiss. The Court has issued a tentative ruling denying the motion which has not yet been made final. Due to the legal uncertainties involved, as well as the lack of any discovery concerning the facts, the Company cannot provide an estimate of reasonably possible loss related to this matter at this time.

In September 2011, the Federal Housing Finance Agency (“FHFA”), as conservator for the government sponsored enterprises, Federal National Mortgage Association and Federal Home Loan Mortgage Corporation (the “GSEs”), commenced proceedings in the United States District Court for the Southern District of New York against numerous issuers, sponsors and underwriters of residential MBS, and their controlling persons, including NAAC, NHEL, NCCI, NSI and NHA, (the Company’s U.S. subsidiaries). The action alleges that the GSEs purchased residential MBS issued by NAAC and NHEL for which the offering materials contained untrue statements or omitted material facts concerning the underwriting standards used by the original lenders and the characteristics of the loans underlying the securities. FHFA alleges that the GSEs purchased certificates in seven offerings in the original principal amount of approximately $2,046 million and seeks rescission of its purchases or compensatory damages. The court has denied the motion to dismiss filed by the Company’s U.S. subsidiaries and the parties are involved in the discovery process. Given the lack of any expert discovery at this stage of the litigation and certain legal uncertainties, the Company cannot provide an estimate of reasonably possible loss related to this matter at this time.

In October 2011, the NCUA commenced proceedings in the United States District Court for the District of Kansas as liquidating agent of U.S. Central Federal Credit Union (“U.S. Central”) against various issuers, sponsors and underwriters of residential MBS purchased by U.S. Central, including NHEL. The complaint alleges that U.S. Central purchased residential MBS issued by NHEL, among others, for which the offering materials contained untrue statements or omitted material facts concerning the underwriting standards used by the original lenders. The complaint alleges that U.S. Central purchased a certificate in one offering in the original principal amount of approximately $50 million and seeks rescission of its purchase or compensatory damages. The court denied, in part, motions to dismiss filed by the defendants, and the Tenth Circuit Court of Appeals affirmed the trial court’s holding. Due to the legal uncertainties involved, as well as the lack of factual information at this early stage of the litigation, in which discovery has not yet begun, the Company cannot provide an estimate of reasonably possible loss related to this matter at this time.

In November 2011, NIP was served with a claim filed by the Madoff Trustee appointed for the liquidation of BLMIS in the United States Bankruptcy Court Southern District of New York. This is a clawback action similar to claims filed by the Madoff Trustee against numerous other institutions. The Madoff Trustee alleges that NIP received redemptions from the BLMIS feeder fund, Harley International (Cayman) Limited in the six years prior to December 11, 2008 (the date proceedings were commenced against BLMIS) and that these are avoidable and recoverable under the U.S. Bankruptcy Code and New York law. The amount that the Madoff Trustee is currently seeking to recover from NIP is approximately $21 million. The specified amount alleged is the Company’s current estimate of the maximum reasonably possible loss from this matter.

In August 2012, The Prudential Insurance Company of America and certain of its affiliates filed several complaints in the Superior Court of New Jersey against various issuers, sponsors and underwriters of residential MBS, including an action against NHEL, NCCI and NSI. The action against these Nomura subsidiaries has been removed to federal court. The complaint alleges that the plaintiffs purchased over $183 million in residential mortgage-backed securities from five different offerings. The plaintiffs allege that the offering materials contained fraudulent misrepresentations regarding the underwriting practices and quality of the loans underlying the securities. The plaintiffs allege causes of action for fraud, aiding and abetting fraud, negligent misrepresentation, and New Jersey Civil RICO, and seek to recover, among other things, compensatory and treble damages. Due to the lack of factual information at this early stage of the litigation and the legal uncertainties involved, the Company cannot provide an estimate of reasonably possible loss related to this matter at this time.

In March 2013, Banca Monte dei Paschi di Siena SpA (“MPS”) issued a claim in the Italian Courts against two former directors of MPS and NIP. MPS alleges that the former directors improperly caused MPS to enter into certain structured financial transactions with NIP in 2009 (the “Transactions”) and alleges that NIP is jointly liable for the unlawful conduct of MPS’s former directors. MPS is claiming damages of not less than EUR700 million. An investigation has also been commenced by the Public Prosecutor’s office in Siena, Italy into various allegations against MPS and certain of its former directors, including in relation to the Transactions. Starting on April 15, 2013, the Public Prosecutor in Siena issued seizure orders in relation to the Transactions seeking to seize the Transactions and approximately EUR 1.9 billion of assets said to be held or receivable in various NIP and Nomura Bank International plc (“NBI”) accounts in, or managed through, Italy and alleging that the Transactions involved offenses under Italian law. NBI was informed on April 23, 2013 that a seizure order had been effected over a small amount of cash and certain receivables in Italy. On April 26, 2013, the relevant Italian criminal judge issued an order declining to validate the various seizure orders issued by the Public Prosecutor. Accordingly, on the same date, the Public Prosecutor ordered the immediate restitution of all assets subject to seizure. The Public Prosecutor subsequently lodged an appeal against the order of the relevant Italian criminal judge that declined to validate the seizure orders. This appeal was rejected by the relevant Italian criminal appeal judges by an order dated July 13, 2013. The Public Prosecutor has lodged an appeal against this order, which is scheduled to be heard at the Supreme Court in Rome on February 25, 2014. It is not possible for the Company to determine whether any loss is probable or to estimate the amount of any loss in this proceeding. Numerous legal and factual issues may need to be resolved, including through potentially lengthy discovery and determination of important factual matters, and by addressing novel or unsettled legal questions relevant to the proceedings in question, before the amount of any potential liability can be reasonably estimated for this claim. The Company cannot predict if, how, or when the claim will be resolved or what any eventual settlement, fine, penalty or other relief may be, particularly since the claim is at an early stage in its development and the claimant is seeking substantial damages.

Nomura Securities Co., Ltd. (“NSC”) is the leading securities firm in Japan with more than five million client accounts. Accordingly, with a significant number of client transactions, NSC is from time to time party to various Japanese civil litigation and other dispute resolution proceedings with clients relating to investment losses. These include an action commenced against NSC in April 2012 by a corporate client seeking ¥5,102 million in damages for losses on the pre-maturity cash out of 16 series of currency-linked structured notes purchased from NSC between 2003 and 2008, and an action commenced against NSC in April 2013 by a corporate client seeking ¥10,247 million in damages for losses on currency derivative transactions and the pre-maturity cash out or redemption of 11 series of equity-linked structured notes purchased from NSC between 2005 and 2011. Although the allegations of the clients involved in such actions include the allegation that NSC’s explanation was insufficient at the time the contracts were entered into, NSC believes these allegations are without merit. The specified amounts alleged are the Company’s current estimate of the maximum reasonably possible loss from these matters.

The Company supports the position of its subsidiaries in each of these claims.

Other mortgage-related contingencies in the U.S.

Certain of the Company’s subsidiaries in the U.S. securitized mortgage loans in the form of MBS. These subsidiaries did not generally originate mortgage loans, but purchased mortgage loans from third-party loan originators (the “originators”). In connection with such purchases, these subsidiaries received loan level representations from the originators. In connection with the securitizations, the relevant subsidiaries provided loan level representations and warranties of the type generally described below, which mirror the representations the subsidiaries received from the originators.

The loan level representations made in connection with the securitization of mortgage loans were generally detailed representations applicable to each loan and addressed characteristics of the borrowers and properties. The representations included, but were not limited to, information concerning the borrower’s credit status, the loan-to-value ratio, the owner occupancy status of the property, the lien position, the fact that the loan was originated in accordance with the originator’s guidelines, and the fact that the loan was originated in compliance with applicable laws. Certain of the MBS issued by the subsidiaries were structured with credit protection provided to specified classes of certificates by monoline insurers.

The relevant subsidiaries have received claims demanding the repurchase of certain loans from trustees of various securitization trusts, made at the instance of one or more investors, or from certificate insurers. The Company’s policy called for review of each claim received, and its subsidiaries have contested those claims believed to be without merit or have agreed to repurchase certain loans for those claims that the subsidiaries have determined to have merit. In several instances, following the rejection of repurchase demands, investors have instituted actions through the trustee alleging breach of contract. These breach of contract claims are at early stages and involve substantial legal uncertainty.

As at January 31, 2014, the total original principal amount of loans that are the subject of repurchase claims against the relevant subsidiaries is $3,203 million, including claims that are the subject of pending breach of contract actions. It should be noted, however, that the above amount does not include loans with a total original principal balance of $1,451 million that are the subject of repurchase claims rejected by the relevant subsidiaries as time-barred based on current law including a decision by the intermediate appellate court of New York State that claims alleging breach of representation must be brought within six years of the time the representation was made. Due to the many legal and factual uncertainties involved, the Company cannot provide an estimate of reasonably possible loss for repurchase claims that relevant subsidiaries have decided to reject.

Guarantees—

ASC 460 “Guarantees” specifies the disclosures to be made in regards to obligations under certain issued guarantees and requires a liability to be recognized for the fair value of a guarantee obligation at inception.

In the normal course of business, Nomura enters into various guarantee arrangements with counterparties in the form of standby letters of credit and other guarantees, which generally have a fixed expiration date.

In addition, Nomura enters into certain derivative contracts that meet the accounting definition of a guarantee, namely derivative contracts that contingently require a guarantor to make payment to a guaranteed party based on changes in an underlying that relate to an asset, liability or equity security held by a guaranteed party. Since Nomura does not track whether its clients enter into these derivative contracts for speculative or hedging purposes, Nomura has disclosed below information about derivative contracts that could meet the accounting definition of guarantees.

For information about the maximum potential amount of future payments that Nomura could be required to make under certain derivatives, the notional amount of contracts has been disclosed. However, the maximum potential payout for certain derivative contracts, such as written interest rate caps and written currency options, cannot be estimated, as increases in interest or foreign exchange rates in the future could be theoretically unlimited.

Nomura records all derivative contracts at fair value on its consolidated balance sheets. Nomura believes the notional amounts generally overstate its risk exposure. Since the derivative contracts are accounted for at fair value, carrying value is considered the best indication of payment and performance risk for individual contracts.

The following table presents information on Nomura’s derivative contracts that could meet the accounting definition of a guarantee and standby letters of credit and other guarantees.


	Millions of yen
	March 31, 2013				December 31, 2013
	Carrying value		Maximum Potential Payout/ Notional Total		Carrying value		Maximum Potential Payout/ Notional Total
Derivative contracts⁽¹⁾⁽²⁾	¥	4,510,650	¥	123,980,481	¥	5,475,362	¥	183,037,287
Standby letters of credit and other guarantees⁽³⁾		277		9,084		289		9,232

(1)	Credit derivatives are disclosed in Note 3. “Derivative instruments and hedging activities” and are excluded from derivative contracts.

(2)	Derivative contracts primarily consist of equity contracts, interest rate contracts and foreign exchange contracts.

(3)	Collateral held in connection with standby letters of credit and other guarantees as of March 31, 2013 is ¥6,374 million and as of December 31, 2013 is ¥6,893 million.

The maturity information on Nomura’s derivative contracts that could meet the accounting definition of a guarantee and standby letters of credit and other guarantees is scheduled as below as of December 31, 2013.


	Millions of yen
			Maximum Potential Payout/Notional
					Years to Maturity
	Carrying value		Total		Less than 1 year		1 to 3 years		3 to 5 years		More than 5 years
Derivative contracts	¥	5,475,362	¥	183,037,287	¥	64,896,560	¥	44,303,857	¥	17,571,948	¥	56,264,922
Standby letters of credit and other guarantees		289		9,232		308		120		—		8,804

17. Segment and geographic information:

Operating segments—

Nomura’s business operation and financial performance reports are prepared based on the Retail, the Asset Management and the Wholesale segments. Nomura structures its business segments based upon the nature of main products and services, its client base and its management structure.

The accounting policies for segment information materially follow U.S. GAAP, except for the impact of unrealized gains/losses on investments in equity securities held for operating purposes, which under U.S. GAAP are included in Income (loss) before income taxes, but excluded from segment information.

Revenues and expenses directly associated with each business segment are included in the operating results of each respective segment. Revenues and expenses that are not directly attributable to a particular segment are allocated to each respective business segment or included in “Other”, based upon Nomura’s allocation methodologies as used by management to assess each segment’s performance.

Business segments’ results are shown in the following tables. Net interest revenue is disclosed because management views interest revenue net of interest expense for its operating decisions. Business segments’ information on total assets is not disclosed because management does not utilize such information for its operating decisions and therefore, it is not reported to management.

The majority of gains and losses arising from election of the fair value option for the investment in Ashikaga Holdings has historically been reported within the Wholesale business segment. However as a result of the listing of Ashikaga Holdings in the First Section of Tokyo Stock Exchange on December 19, 2013, such gains and losses are now reported within the Other segment in Other.


	Millions of yen
	Retail		Asset Management		Wholesale		Other (Incl. elimination)			Total
Nine months ended December 31, 2012
Non-interest revenue	¥	256,934	¥	48,330	¥	334,679	¥	408,877		¥	1,048,820
Net interest revenue		2,242		2,313		113,266		(21,554	)		96,267

Net revenue		259,176		50,643		447,945		387,323			1,145,087
Non-interest expenses		215,766		33,395		411,946		430,864			1,091,971

Income (loss) before income taxes	¥	43,410	¥	17,248	¥	35,999	¥	(43,541	)	¥	53,116


Nine months ended December 31, 2013
Non-interest revenue	¥	409,649	¥	57,079	¥	471,362	¥	108,563		¥	1,046,653
Net interest revenue		4,398		2,936		95,262		(516	)		102,080

Net revenue		414,047		60,015		566,624		108,047			1,148,733
Non-interest expenses		245,313		38,226		488,301		122,246			894,086

Income (loss) before income taxes	¥	168,734	¥	21,789	¥	78,323	¥	(14,199	)	¥	254,647


	Millions of yen
	Retail		Asset Management		Wholesale		Other (Incl. elimination)			Total
Three months ended December 31, 2012
Non-interest revenue	¥	95,028	¥	17,653	¥	144,451	¥	93,204		¥	350,336
Net interest revenue		651		1,133		44,517		(16,451	)		29,850

Net revenue		95,679		18,786		188,968		76,753			380,186
Non-interest expenses		75,419		11,468		144,611		144,623			376,121

Income (loss) before income taxes	¥	20,260	¥	7,318	¥	44,357	¥	(67,870	)	¥	4,065


Three months ended December 31, 2013
Non-interest revenue	¥	126,449	¥	19,841	¥	157,623	¥	34,707		¥	338,620
Net interest revenue		1,526		1,374		31,043		659			34,602

Net revenue		127,975		21,215		188,666		35,366			373,222
Non-interest expenses		80,302		12,289		160,866		39,070			292,527

Income (loss) before income taxes	¥	47,673	¥	8,926	¥	27,800	¥	(3,704	)	¥	80,695

Transactions between operating segments are recorded within segment results on commercial terms and conditions and are eliminated in the “Other” column.

The following tables present the major components of income (loss) before income taxes in “Other.”


	Millions of yen
	Nine months ended December 31
	2012			2013
Net gain (loss) related to economic hedging transactions	¥	148		¥	10,856
Realized gain (loss) on investments in equity securities held for operating purposes		(165	)		1,994
Equity in earnings of affiliates		9,168			22,398
Corporate items		(15,220	)		(34,999	)
Other⁽¹⁾		(37,472	)		(14,448	)

Total	¥	(43,541	)	¥	(14,199	)


	Millions of yen
	Three months ended December 31
	2012			2013
Net gain (loss) related to economic hedging transactions	¥	415		¥	5,150
Realized gain (loss) on investments in equity securities held for operating purposes		(42	)		1,306
Equity in earnings of affiliates		4,549			8,171
Corporate items		(14,800	)		(13,954	)
Other⁽¹⁾		(57,992	)		(4,377	)

Total	¥	(67,870	)	¥	(3,704	)

(1)	Includes the impact of Nomura’s own creditworthiness.

100

The tables below present reconciliations of the combined business segments’ results included in the preceding table to Nomura’s reported Net revenue, Non-interest expenses and Income before income taxes in the consolidated statements of income.


	Millions of yen
	Nine months ended December 31
	2012		2013
Net revenue	¥	1,145,087	¥	1,148,733
Unrealized gain on investments in equity securities held for operating purposes		14,932		18,400

Consolidated net revenue	¥	1,160,019	¥	1,167,133


Non-interest expenses	¥	1,091,971	¥	894,086
Unrealized gain on investments in equity securities held for operating purposes		—		—

Consolidated non-interest expenses	¥	1,091,971	¥	894,086

Income before income taxes	¥	53,116	¥	254,647
Unrealized gain on investments in equity securities held for operating purposes		14,932		18,400

Consolidated income before income taxes	¥	68,048	¥	273,047


	Millions of yen
	Three months ended December 31
	2012		2013
Net revenue	¥	380,186	¥	373,222
Unrealized gain on investments in equity securities held for operating purposes		8,900		6,199

Consolidated net revenue	¥	389,086	¥	379,421


Non-interest expenses	¥	376,121	¥	292,527
Unrealized gain on investments in equity securities held for operating purposes		—		—

Consolidated non-interest expenses	¥	376,121	¥	292,527

Income before income taxes	¥	4,065	¥	80,695
Unrealized gain on investments in equity securities held for operating purposes		8,900		6,199

Consolidated income before income taxes	¥	12,965	¥	86,894

Geographic information—

Nomura’s identifiable assets, revenues and expenses are generally allocated based on the country of domicile of the legal entity providing the service. However, because of the integration of the global capital markets and the corresponding global nature of Nomura’s activities and services, it is not always possible to make a precise separation by location. As a result, various assumptions, which are consistent among years, have been made in presenting the following geographic data.

101

The table below presents a geographic allocation of net revenue and income (loss) before income taxes from operations by geographic areas, and long-lived assets associated with Nomura’s operations. Net revenue in “Americas” and “Europe” substantially represents Nomura’s operations in the United States and the United Kingdom, respectively. Net revenue and long-lived assets have been allocated based on transactions with external customers while income (loss) before income taxes have been allocated based on the inclusion of intersegment transactions.


	Millions of yen
	Nine months ended December 31
	2012			2013
Net revenue⁽¹⁾:
Americas	¥	148,032		¥	173,834
Europe		140,551			180,211
Asia and Oceania		27,860			46,346

Subtotal		316,443			400,391
Japan		843,576			766,742

Consolidated	¥	1,160,019		¥	1,167,133

Income (loss) before income taxes:
Americas	¥	23,447		¥	(1,775	)
Europe		(56,643	)		(38,832	)
Asia and Oceania		(4,209	)		(20	)

Subtotal		(37,405	)		(40,627	)
Japan		105,453			313,674

Consolidated	¥	68,048		¥	273,047


	Millions of yen
	Three months ended December 31
	2012			2013
Net revenue⁽¹⁾:
Americas	¥	46,722		¥	63,975
Europe		61,264			52,958
Asia and Oceania		11,478			14,736

Subtotal		119,464			131,669
Japan		269,622			247,752

Consolidated	¥	389,086		¥	379,421

Income (loss) before income taxes:
Americas	¥	1,590		¥	8,049
Europe		47			(14,783	)
Asia and Oceania		2,617			(1,510	)

Subtotal		4,254			(8,244	)
Japan		8,711			95,138

Consolidated	¥	12,965		¥	86,894

(1)	There is no revenue derived from transactions with a single major external customer.

102


	Millions of yen
	March 31, 2013		December 31, 2013
Long-lived assets:
Americas	¥	118,302	¥	136,964
Europe		111,381		122,589
Asia and Oceania		20,471		17,080

Subtotal		250,154		276,633
Japan		294,002		272,872

Consolidated	¥	544,156	¥	549,505

18. Subsequent events:

On February 13, 2014, Nomura sold the shares of Fortress Investment Group LLC, an equity-method investee. As a result of this sale, a realized gain of approximately ¥21 billion is estimated to be recorded in the fourth quarter for the year ending March 31, 2014.

103

2. Other

On October 29, 2013 the Board of Directors resolved to pay the dividend based on the record date of September 30, 2013 to shareholders registered as of September 30, 2013.


a. Total dividend based on the record date of September 30, 2013	¥	29,662 million
b. Dividend based on the record date of September 30, 2013 per share		¥8.0

104

Exhibit 1

[Translation]

Quarterly Review Report of Independent Auditor

February 14, 2014

The Board of Directors

Nomura Holdings, Inc.


				Ernst & Young ShinNihon LLC

				Tadayuki Matsushige
				Certified Public Accountant
				Designated and Engagement Partner

				Noboru Miura
				Certified Public Accountant
				Designated and Engagement Partner

				Toyohiro Fukata
				Certified Public Accountant
				Designated and Engagement Partner

				Hisashi Yuhara
				Certified Public Accountant
				Designated and Engagement Partner

We have performed a quarterly review of the quarterly consolidated financial statements of Nomura Holdings, Inc. (the “Company”) included in Financial Information section for the three-month and nine-month periods ended December 31, 2013 within the fiscal period from April 1, 2013 to March 31, 2014, which comprise the quarterly consolidated balance sheet, the quarterly consolidated statements of income, comprehensive income, changes in equity and cash flows, and the related notes, pursuant to the requirement of the rule specified in Article 193-2, Section 1 of the Financial Instruments and Exchange Act.

Management’s Responsibility for the Quarterly Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the quarterly consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (see Note 1 to the quarterly consolidated financial statements) pursuant to Article 95 of “Regulations Concerning the Terminology, Forms and Preparation Methods of Quarterly Consolidated Financial Statements”, and for designing and operating such internal control as management determines is necessary to enable the preparation and fair presentation of the quarterly consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to independently express a conclusion on the quarterly consolidated financial statements based on our quarterly review. We conducted our quarterly review in accordance with quarterly review standards generally accepted in Japan.

A quarterly review of the quarterly consolidated financial statements consists of making inquiries, primarily of management and persons responsible for financial and accounting matters, applying analytical and other quarterly review procedures. A quarterly review is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in Japan.

We believe that we have obtained the evidence to provide a basis for our conclusion.

Auditor’s Conclusion

Based on our quarterly review, nothing has come to our attention that causes us to believe that the quarterly consolidated financial statements referred to above do not present fairly, in all material respects, the consolidated financial position of Nomura Holdings, Inc. and its consolidated subsidiaries as of December 31, 2013, and the consolidated results of their operations for the three-month and nine-month periods then ended and cash flows for the nine-month period then ended in conformity with accounting principles generally accepted in the United States of America (see Note 1 to the quarterly consolidated financial statements).

Conflicts of Interest

We have no interest in the Company which should be disclosed under the provisions of the Certified Public Accountants Act.

*	Above is an electronic version of the original Quarterly Review Report of Independent Auditor and the Company maintains the original report.

(Note)

This is an English translation of the Japanese language Quarterly Review Report of Independent Auditor issued by Ernst & Young ShinNihon LLC in connection with the limited procedures applied on the quarterly consolidated financial statements of Nomura Holdings, Inc., prepared in Japanese, for the three-month and nine-month periods ended December 31, 2013 within the fiscal period from April 1, 2013 to March 31, 2014. Ernst & Young ShinNihon LLC have not applied any such procedures nor have they performed an audit on the English language version of the quarterly consolidated financial statements for the above-mentioned period which are included in this report on Form 6-K.

Exhibit 2

Confirmation Letter

1 [Appropriateness of Quarterly Securities Report]

Koji Nagai, Group Chief Executive Officer, and Shigesuke Kashiwagi, Chief Financial Officer, have confirmed that the quarterly securities report of Nomura Holdings, Inc. for the three months ended December 31, 2013 is appropriate under the Financial Instruments and Exchange Act.

2 [Special Comments]

There is no special comment to be stated.

Exhibit 3

Ratio of Earnings to Fixed Charges and Computation Thereof

The following table sets forth the ratio of earnings to fixed charges of Nomura Holdings, Inc. for the nine months ended December 31, 2013, in accordance with U.S. GAAP.


	Millions of yen
	For the nine months ended December 31, 2013
Earnings:
Pre-tax income from continuing operations before adjustment for income or loss from equity investees	¥	245,493
Add: Fixed charges		213,938
Distributed income of equity investees		7,591

Earnings as defined	¥	467,022

Fixed charges	¥	213,938
Ratio of earnings to fixed charges⁽¹⁾		2.2

(1)

For the purpose of calculating the ratio of earnings to fixed charges, earnings consist of pre-tax income before adjustment for income or loss from equity investees, plus (i) fixed charges and (ii) distributed income of equity investees. Fixed charges consist of interest expense. Fixed charges exclude premium and discount amortization as well as interest expense, which are included in Net gain (loss) on trading. Fixed charges also exclude interest within rent expense, which is insignificant.