Daiwa Securities Group Annual Report 2012 Corporate Summary Executive Messages Business Strategy Financial Section Other Information Management Systems & CSR Value at Risk <Reputation Risk Management> Range and Assumption of VaR GLYPH<129> Confidence level: 99% Holding period: 1 day GLYPH<129> Adjusted for price correlation between products The Group is establishing a liquidity management system based  on the Liquidity Coverage Ratio as defined by the Basel Committee  on Banking Supervision. Under this system, daily checks are per- formed to ascertain that liquidity portfolios are sufficient to cover  both unsecured short-term funds procured falling due within a fixed  time period and the estimated outflow of funds in the event of a  number of envisioned stress scenarios in that same period. This  system makes it possible for the Group to continue operations  even in the event that procuring funds without collateral for one  whole year became an impossibility. Reputation risk refers to the possibility of the Group sustaining  unforeseen losses due to a deterioration of its reputation, caused  by the spread of rumors or erroneous economic information. There  are no uniform procedures for managing reputation risk because it  can emanate from a variety of sources. The Group has established various regulations under its Disclo- sure Policy, with particular emphasis on the management and  provision of information. It has also set up the Disclosure Commit- tee within Daiwa Securities Group Inc. Each Group company is charged with the task of reporting  information on reputation risk to the Disclosure Committee. Infor- mation is obtained and centrally managed at Daiwa Securities  Group Inc., which disseminates it in a prompt and accurate manner  according to the decisions of the Disclosure Committee. The Group works hard to keep abreast of problems and occur- rences that may affect its reputation so that if and when such prob- lems occur, their impact on the Group can be minimized. It also  acts to ensure that erroneous and inaccurate information is properly  corrected, and responds appropriately to libel and other issues.  The Group has public relations and investor relations systems in  place to prevent and minimize risks regarding its reputation. Operational risk is the risk of incurring losses due to inappropriate  or malfunctioning internal processes, personnel, or computer sys- tems, or due to adverse external events. As the Group’s business becomes more sophisticated, diversi- fied, and systemized, the accompanying risks become more varied,  and as a result the need to manage such operational risk grows  each year. Major Group companies conduct risk control self-assessments  (RCSA) and control their operational risks properly in other ways in  accordance with a set of rules Daiwa Securities Group Inc. has set  forth on operational risk management. In addition, the Group has  taken other necessary measures such as the institution of rigid  rules concerning authority and the preparation of procedural manu- als for automating office operations and reducing human error.  Each Group company strives to reduce operational risk according  to the nature of its own business. 42 <Operational Risk Management> 6/10 9/10 12/10 3/11 6/11 9/11 12/11 3/12 VaR (Month-end) 6.47 5.63 6.01 5.13 3.81 3.39 1.94 1.49 Quarterly High 12.00 8.48 6.91 6.86 4.59 4.21 3.52 2.54 Low 4.38 4.39 5.44 4.62 2.74 3.04 1.86 1.39 Average 7.31 6.27 6.08 5.90 3.61 3.62 2.75 1.94 Equity 0.77 1.39 1.34 2.08 1.70 0.77 0.82 0.42 Interest 4.48 4.84 5.26 4.82 4.00 3.39 1.35 1.62 Currency 4.04 2.03 1.42 0.68 0.63 0.70 0.68 0.59 Commodities – – – – 0.02 0.08 0.23 0.02 (Billions of yen) Daiwa Securities Group (Consolidated)  By Risk Factor (Month-end)