Corporate Summary Executive Messages Business Strategy Financial Section Management Systems & CSR 20 Daiwa Securities Group Annual Report 2012 Message From the COO/CFO Since the global financial crisis that followed the Lehman Shock in 2008, governments throughout the world have been  introducing tighter regulations aimed at fostering changes in the business models of financial institutions and ensuring  their financial stability. The Daiwa Securities Group has always maintained a comparatively healthy financial position,  but in the future we plan to go a step further. We intend to take even more proactive steps to procure and manage capi- tal and maintain appropriate levels of liquidity, maintain an appropriate balance of assets and liabilities, and seek to  enhance sustainable improvement of company value from the standpoint of financial health. stress. In other words, the regulations on financial companies are  now being extended to include not only capital adequacy, but also  liquidity and leverage. In addition to the Basel Accords, the G20 is taking steps to  introduce new controls on derivative trading that will help limit set- tlement risk and counterparty risk. They have agreed to revise laws  governing the over-the-counter derivatives market by the end of  2012. The US government is also considering whether to introduce  the so-called “Volcker Rule,” which would prohibit depositary finan- cial institutions from trading on their own accounts as well as from  owning or sponsoring investment funds. Governments are making major revisions to their financial industry  regulatory structures, due to the financial crisis starting from the  Lehman Shock in 2008, to the European debt crisis in 2012. With the introduction of new rules on consolidated regulation  and supervision, the Daiwa Securities Group is now required—as  of FY2011—to meet the same capital adequacy ratios as banks  (the “Basel 2” regulations). The “Basel 2.5” accords introduced at  the end of December 2011 place some tighter controls on market  risk, but the next major change in capital adequacy rules will be the  “Basel 3” accords, a comprehensive package of revisions that will  be introduced in stages from March 2013. The Basel 3 regulations  will require financial companies to maintain “going concern capital”— an amount of high-quality assets (common stocks and retained  earnings) sufficient to cover any losses that might conceivably be  generated in the course of ongoing operations. These rules will  prevent companies from over-leveraging, and ensure that they  maintain enough liquidity to ride out any major environmental  The new financial regulatory environment that the Daiwa Securities  Group faces reflects a hasty reaction to the prolonged turmoil in  financial markets. The Basel 3 accords are an attempt to dictate  more conservative norms among financial companies regarding the  appropriate levels of capital adequacy and liquidity and it will be  necessary to make various changes to meet the new standards.  Emphasizing Capital Efficiency Dramatic Changes in  Global Financial Regulation Short-term Unsecured Capital Procurement and Liquidity Portfolio of the Daiwa Securities Group as of March 2012 (¥ billion) Liquidity Portfolio Short-term Unsecured Capital Procurement 0 500 1,000 1,500 2,000 2,500 939.2  1,304.6  597.4 215.3 275.1 GLYPH<H18549>  Loans  GLYPH<H18549>  Commercial paper  GLYPH<H18549>  Bonds maturing within one year GLYPH<H18549>  Portfolio of liquid assets (cash, JGBs, etc.)  GLYPH<H18549>  Semi-liquid assets (bonds, listed stock, etc.) Other Information