R Monex Group / 8698

COVERAGE INITIATED ON: 2018.04.16 LAST UPDATE: 2020.01.31

Shared Research Inc. has produced this report by request from the company discussed in the report. The aim is to provide an “owner’s manual” to investors. We at Shared Research Inc. make every effort to provide an accurate, objective, and neutral analysis. In order to highlight any biases, we clearly attribute our data and findings. We will always present opinions from company management as such. Our views are ours where stated. We do not try to convince or influence, only inform. We appreciate your suggestions and feedback. Write to us at [email protected] or find us on Bloomberg.

Research Coverage Report by Shared Research Inc. Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

INDEX

How to read a Shared Research report: This report begins with the trends and outlook section, which discusses the company’s most recent earnings. First-time readers should start at the business section later in the report.

Executive summary ------3 Key financial data ------5 Recent updates ------6 Highlights ------6 Trends and outlook ------7 Quarterly trends and results ------7 Full-year company forecast for FY03/20 ------25 Medium-term outlook ------29 Business ------37 Business description ------37 Services and customer segments ------38 Earnings structure ------48 Consolidated earnings ------50 Japan segment ------52 US segment ------60 Strengths and weaknesses ------65 Group companies ------67 Market and value chain ------68 Historical performance ------84 Income statement ------105 Balance sheet ------106 Cash flow statement ------111 Other information ------112 History ------112 News and topics ------114 Major shareholders ------114 Shareholder returns------114 Corporate governance and top management ------115 Profile ------116

02/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Executive summary

One of the top five online brokerages with advanced trading tools and overseas subsidiaries

Monex Group, Inc. started as online brokerage Monex, Inc. in April 1999 with CEO Oki Matsumoto and Sony Corporation as ◤ core investors. The company grew through mergers with Nikko Beans, Inc. in 2005, and ORIX Securities in 2010. The group expanded overseas by adding Boom Group and TradeStation Group, Inc. in 2010 and 2011, respectively. Seeing blockchain and cryptocurrency technology as key growth drivers in the future, Monex Group has been preparing to enter this field since announcing its “New Beginning” initiative in October 2017. In keeping with this plan, it subsequently acquired cryptocurrency exchange operator Coincheck, Inc. in April 2018.

Monex Group’s core business is retail online brokerage. The company offers trading services mainly in equities, forex, and ◤ investment trusts as well as futures, options, bonds, and cryptocurrency. Peers are SBI Securities, Rakuten Securities, Matsui Securities, and kabu.com Securities (in order of market share).

In FY03/19, main group subsidiary Monex, Inc. had 1.82mn accounts (third of the top five online brokerages; 15.4% share), ◤ customer assets in custody of JPY4.1tn (third; 15.8%), equity trading value of JPY14.2tn (fifth, 6.5%), and margin trading balance of JPY157.0bn (fifth; 8.1%). Monex has stood out for its advanced trading tools, overseas subsidiaries, and in-house development of a backbone brokerage system. The customer base mainly consists of investors with a longer-term outlook who don’t mind paying higher commissions for the diverse trading order options and trading tools the company offers.

Monex Group has five segments: Japan, US, Asia-Pacific, Crypto Asset, and Investment. The main drivers of each segment are ◤ Monex, Inc., TradeStation Group, Boom Securities, Coincheck, and Monex Ventures, respectively. By segment, FY03/19 net operating revenue broke down to Japan 53.2%, US 40.0%, and Crypto Asset 4.3%; Japan accounted for 68.3% and US 108.3% of FY03/19 pre-tax profit, while Crypto Asset posted a loss of JPY1.7bn.

Japan (Monex, Inc.): Segment operating revenue consists of stock brokerage commissions (41.4% of segment net operating ◤ revenue in FY03/19), trading income (17.6%), and net financial income (30.4%). Segment SG&A expenses are mostly fixed. Trading-related expenses accounted for 22.3%, personnel expenses 17.6%, and system-related expenses 54.1% in FY03/19.

US (TradeStation Group): Net operating revenue consists of commissions received (62.1% of the segment’s net operating ◤ revenue in FY03/19) and net financial income (31.1%). Segment SG&A expenses break down to trading-related expenses (35.5% of segment SG&A expenses in FY03/19), personnel expenses (40.2%), and system-related expenses (18.6%). The share of personnel expenses is high because the company hires in-house system developers.

Crypto Asset (Coincheck, Inc.): Coincheck provides cryptocurrency exchange services and earns the majority of revenue from ◤ net trading income. Segment SG&A expenses are trading-related expenses (14.9% of segment SG&A expenses in FY03/19), personnel expenses (36.2%), and office expenses (19.1%). In FY03/19, Coincheck had 1.75mn registered users and 900,000 verified accounts.

Trends and outlook

The company’s previous strategy, covering FY03/12–FY03/17, focused on responding to globalization and bringing system ◤ development in-house. While the company was able to expand its product range, particularly at Monex, Inc., and develop an IT system internally, the parallel operation of two backbone brokerage systems pushed up costs. As a result, although sales grew, profits fell, while competitors grew their earnings during this period.

Under its new strategy started in FY03/18, Monex Group aims to utilize the assets acquired in the period of the previous ◤ strategy and create new businesses leveraging its management resources. The company aims to reach and sustain OPM of 30%. Seeing blockchain and cryptocurrency technology as key growth drivers in the future, Monex Group has been preparing to enter this field since announcing its “New Beginning” initiative in October 2017, including making preparations for the startup of a cryptocurrency exchange business and establishing a cryptocurrency research center.

03/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Strengths and weaknesses

Shared Research sees the company’s strengths as its customer base that pays higher commissions for its value-added services, a highly acclaimed trading platform, and a proprietary online trading system that lowers costs while strengthening product offerings. Its weaknesses lie in a high cost structure, being late to acquire active traders due to a product-driven approach, and limited revenue from active traders. (See Strengths and weaknesses section for details.)

04/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Key financial data

Income statement FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 (JPYmn) J-GAAP J-GAAP IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS Operating revenue 22,499 25,227 30,569 36,090 54,722 50,975 54,271 45,831 53,635 52,175 YoY -9.3% 12.1% - 18.1% 51.6% -6.8% 6.5% -15.6% 17.0% -2.7% Net operating revenue 19,921 22,589 28,888 33,769 50,051 45,209 49,642 41,852 49,155 47,417 YoY -5.4% 13.4% - 16.9% 48.2% -9.7% 9.8% -15.7% 17.4% -3.5% GPM 88.5% 89.5% 94.5% 93.6% 91.5% 88.7% 91.5% 91.3% 91.6% 90.9% Operat ing profit equivalent 4,461 4,741 2,827 3,410 15,069 8,066 8,247 1,274 9,302 2,727 YoY -15.3% 6.3% - 20.6% 341.9% -46.5% 2.2% -84.6% 630.1% -70.7% OPM 19.8% 18.8% 9.2% 9.4% 27.5% 15.8% 15.2% 2.8% 17.3% 5.2% Pre-tax profit 3,996 3,268 2,668 6,998 16,895 6,115 5,100 1,071 8,631 1,790 YoY - -18.2% - 162.3% 141.4% -63.8% -16.6% -79.0% 705.9% -79.3% Pre-tax margin 17.8% 13.0% 8.7% 19.4% 30.9% 12.0% 9.4% 2.3% 16.1% 3.4% Profit attributable to owners of the parent 3,776 1,992 1,028 3,901 10,354 3,494 3,554 298 6,730 1,181 YoY - -47.2% - 279.5% 165.4% -66.3% 1.7% -91.6% - -82.5% Profit margin 16.8% 7.9% 3.4% 10.8% 18.9% 6.9% 6.5% 0.7% 12.5% 2.3% Per share data Shares issued (year-end; '000) 2,991 3,197 2,997 2,997 287,681 287,681 284,134 280,592 269,706 266,322 EPS 15.3 6.5 3.4 13.0 35.8 12.2 12.5 1.1 24.3 4.4 EPS (fully dilut ed) ------12.5 1.1 24.3 - Dividend per share 7.0 5.0 2.0 4.1 18.0 8.2 9.6 5.2 10.0 5.4 Book value per share 221.4 221.5 252.1 265.8 280.5 302.2 302.0 290.0 298.5 297.3 Balance sheet (JPYmn) Cash and cash equivalents 31,696 34,663 39,788 51,193 85,442 68,540 61,902 77,900 83,884 154,146 Cash segregated as deposits 162,285 175,202 291,899 349,837 426,719 525,567 497,442 552,028 543,438 566,220 Margin transaction assets 115,927 96,602 90,795 149,487 178,230 175,637 149,236 147,653 192,224 138,836 Loans secured by securities 186 - 15,339 44,583 152,382 159,969 31,628 34,250 21,389 42,064 Int angible asset s 9,945 11,055 35,916 37,394 41,558 48,807 53,053 53,751 49,851 47,698 Total assets 374,688 359,093 526,729 682,193 939,270 1,055,242 888,116 936,776 973,520 1,027,849 Margin t ransact ion liabilit ies 43,677 31,637 27,826 39,745 36,308 46,125 33,006 40,664 29,683 32,793 Loans payable secured by securities 35,108 26,603 24,776 67,661 183,765 195,521 71,974 77,504 78,203 101,028 Deposits received 70,583 93,842 185,797 231,164 287,385 368,656 350,904 324,672 324,256 358,176 Guarantee deposits 101,337 78,707 118,058 131,535 167,039 184,850 170,666 257,753 254,647 249,544 Bonds and loans payable 48,450 49,768 82,200 113,381 159,125 150,418 154,261 138,133 191,010 190,641 Tot al liabilit ies 308,378 285,098 450,923 602,492 858,569 968,310 802,094 855,090 893,027 947,707 Total capital 66,310 73,995 75,806 79,702 80,701 86,932 86,022 81,687 80,493 80,142 Total interest-bearing debt 48,450 49,768 82,200 113,381 159,125 150,418 154,261 138,133 191,010 190,641 Cash flow statement (JPYmn) Cash flow s from operat ing act ivit ies -5,198 4,288 3,931 -20,510 -8,256 -249 766 43,715 -38,701 53,834 Cash flow s from invest ing act ivit ies 4,201 -2,087 -25,361 401 5,960 -8,602 -5,934 -8,301 -5,872 22,763 Cash flow s from financing act ivit ies -9,026 2,232 26,281 30,395 35,998 -11,968 -673 -18,462 49,870 -5,909 Financial rat ios ROA (pre-tax profit based) 1.3% 0.9% 0.6% 1.2% 2.1% 0.6% 0.5% 0.1% 0.9% 0.2% ROE 7.1% 2.8% 1.4% 5.0% 12.9% 4.2% 4.1% 0.4% 8.3% 1.5% Equit y rat io 17.7% 20.6% 14.4% 11.7% 8.6% 8.2% 9.7% 8.7% 8.3% 7.8% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Figures that exceed 1,000% YoY are denoted by “-.”

05/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Recent updates Highlights On January 31, 2020, Monex Group, Inc. announced earnings results for Q3 FY03/20; see the results section for details.

On November 27, 2019, the company announced that its subsidiary TradeStation Group, Inc. announced the launch of the new commission plan TS SELECT.

TradeStation Securities, Inc., a subsidiary of TradeStation Group, Inc., launched its new commission plan TS SELECT.

In October 2019, the US-based subsidiary TradeStation began offering TSgo, a service offering commission-free trades for stocks, options, and ETFs for customers trading on its mobile or web platforms (prior to the launch of TSgo, commissions had been USD5.00 per trade for stocks and ETFs, and USD5.00 per trade plus USD0.50 per contract for options).

TS SELECT offers free commissions on stock, ETF, and option trades not only for transactions that take place on its mobile app or web platform, but also for those made via TradeStation, its desktop platform with various special functions. However, for option trades, customers will be charged USD0.60 per contract (prior to TS SELECT, commissions per option trade had been USD5.00 plus USD0.50 per contract).

On November 25, 2019, Shared Research updated the report following interviews with the company.

For previous releases and developments, please refer to the News and topics section.

06/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Trends and outlook Quarterly trends and results Cumulat ive FY03/19 FY03/20 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Operating revenue 13,612 26,400 40,116 52,175 13,153 26,034 38,575 YoY 14.9% 7.3% 4.5% -2.7% -3.4% -1.4% -3.8% Net operating revenue 12,358 23,845 36,400 47,417 11,881 23,278 34,433 YoY 14.0% 6.2% 3.9% -3.5% -3.9% -2.4% -5.4% Commissions received 6,756 13,085 19,996 25,741 5,721 11,456 17,559 YoY -1.9% -5.3% -6.4% -11.8% -15.3% -12.4% -12.2% Brokerage 5,134 9,854 15,186 19,463 4,341 8,669 13,332 YoY -2.2% -5.8% -7.4% -13.7% -15.4% -12.0% -12.2% Equity and ETF 3,364 6,494 9,893 12,610 2,575 5,142 8,225 YoY -10.0% -12.7% -16.4% -21.1% -23.5% -20.8% -16.9% Futures and options 1,768 3,357 5,289 6,851 1,737 3,485 5,060 YoY 17.0% 11.0% 16.0% 4.3% -1.8% 3.8% -4.3% Underw rit ing and dist ribut ion 23 32 57 70 32 56 79 YoY 283.3% -74.6% -63.7% -59.3% 39.1% 75.0% 38.6% Subscript ion and dist ribut ion 70 162 299 355 58 119 173 YoY -20.5% -2.4% 4.9% -22.7% -17.1% -26.5% -42.1% Ot her commissions 1,530 3,038 4,455 5,852 1,289 2,612 3,975 YoY -0.8% -0.8% -1.5% -2.9% -15.8% -14.0% -10.8% Net t rading income 1,791 3,209 5,014 6,461 2,304 4,254 5,877 YoY 102.8% 77.6% 73.3% 67.2% 28.6% 32.6% 17.2% Financial income 4,889 9,733 14,562 19,242 4,930 9,949 14,586 YoY 23.7% 11.8% 11.4% -0.6% 0.8% 2.2% 0.2% Other operating revenue 175 373 544 731 198 375 553 YoY 37.8% 33.7% -48.3% -40.3% 13.1% 0.5% 1.7% SG&A expenses 11,255 22,193 33,400 44,690 10,666 21,112 31,383 YoY 14.7% 14.7% 13.5% 12.1% -5.2% -4.9% -6.0% % of net operating revenue 91.1% 93.1% 91.8% 94.2% 89.8% 90.7% 91.1% Operat ing profit equivalent 1,103 1,652 3,000 2,727 1,215 2,166 3,050 YoY 8.1% -46.7% -46.5% -70.7% 10.2% 31.1% 1.7% % of net operating revenue 8.9% 6.9% 8.2% 5.8% 10.2% 9.3% 8.9% Pre-tax profit 1,130 1,830 3,223 1,790 1,196 2,195 3,064 YoY 42.1% -39.2% -40.7% -79.3% 5.8% 19.9% -4.9% % of net operating revenue 9.1% 7.7% 8.9% 3.8% 10.1% 9.4% 8.9% Profit attributable to owners of the parent 1,196 1,745 2,696 1,181 849 1,679 2,252 YoY 171.2% -13.4% -42.2% -82.5% -29.0% -3.8% -16.5% % of net operating revenue 9.7% 7.3% 7.4% 2.5% 7.1% 7.2% 6.5% Quarterly performance FY03/19 FY03/20 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Operating revenue 13,612 12,788 13,716 12,059 13,153 12,881 12,541 YoY 14.9% 0.2% -0.4% -21.0% -3.4% 0.7% -8.6% Net operating revenue 12,358 11,487 12,555 11,017 11,881 11,397 11,155 YoY 14.0% -1.1% -0.3% -21.9% -3.9% -0.8% -11.2% Commissions 6,756 6,329 6,911 5,745 5,721 5,735 6,103 YoY -1.9% -8.7% -8.3% -26.7% -15.3% -9.4% -11.7% Brokerage 5,134 4,720 5,332 4,277 4,341 4,328 4,663 YoY -2.2% -9.5% -10.1% -30.4% -15.4% -8.3% -12.5% Equity and ETF 3,364 3,130 3,399 2,717 2,575 2,567 3,083 YoY -10.0% -15.5% -22.6% -34.4% -23.5% -18.0% -9.3% Futures and options 1,768 1,589 1,932 1,562 1,737 1,748 1,575 YoY 17.0% 5.0% 25.7% -22.1% -1.8% 10.0% -18.5% Underw rit ing and dist ribut ion 23 9 25 13 32 24 23 YoY 283.3% -92.5% -19.4% -13.3% 39.1% 166.7% -8.0% Subscript ion and dist ribut ion 70 92 137 56 58 61 54 YoY -20.5% 17.9% 15.1% -67.8% -17.1% -33.7% -60.6% Ot her commissions 1,530 1,508 1,417 1,397 1,289 1,323 1,363 YoY -0.8% -0.7% -2.9% -7.1% -15.8% -12.3% -3.8% Net t rading income 1,791 1,418 1,805 1,447 2,304 1,950 1,623 YoY 102.8% 53.5% 66.2% 48.9% 28.6% 37.5% -10.1% Financial income 4,889 4,844 4,829 4,680 4,930 5,019 4,637 YoY 23.7% 1.9% 10.5% -25.4% 0.8% 3.6% -4.0% Other operating revenue 175 198 171 187 198 177 178 YoY 37.8% 30.3% -77.9% 8.7% 13.1% -10.6% 4.1% SG&A expenses 11,255 10,938 11,207 11,290 10,666 10,446 10,271 YoY 14.7% 14.7% 11.1% 8.4% -5.2% -4.5% -8.4% % of net operating revenue 91.1% 95.2% 89.3% 102.5% 89.8% 91.7% 92.1% Operat ing profit equivalent 1,103 549 1,348 -273 1,215 951 884 YoY 8.1% -73.6% -46.2% - 10.2% 73.2% -34.4% % of net operating revenue 8.9% 4.8% 10.7% -2.5% 10.2% 8.3% 7.9% Pre-tax profit 1,130 700 1,393 -1,433 1,196 999 869 YoY 42.1% -68.4% -42.6% - 5.8% 42.7% -37.6% % of net operating revenue 9.1% 6.1% 11.1% -13.0% 10.1% 8.8% 7.8% Profit attributable to owners of the parent 1,196 549 951 -1,515 849 830 573 YoY 171.2% -65.1% -64.1% - -29.0% 51.2% -39.7% % of net operating revenue 9.7% 4.8% 7.6% -13.8% 7.1% 7.3% 5.1% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Figures that exceed 1,000% YoY are denoted by “-.” Quarterly performance figures calculated using differences in cumulative quarterly performance.

07/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

SG&A breakdown

SG&A breakdown (cumulative) FY03/19 FY03/20 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Total SG&A expenses 11,255 22,193 33,400 44,690 10,666 21,112 31,383 YoY 14.7% 14.7% 13.5% 12.1% -5.2% -4.9% -6.0% Trading-related expenses 3,157 5,967 8,964 12,051 2,881 5,715 8,546 YoY 5.2% 3.5% 2.4% 0.7% -8.7% -4.2% -4.7% Commissions paid 1,255 2,309 3,552 4,609 1,160 2,311 3,376 YoY 27.9% 18.8% 20.0% 11.7% -7.6% 0.1% -5.0% Stock exchange and association fees 199 385 588 765 179 361 526 YoY -7.4% -12.7% -12.2% -14.7% -10.1% -6.2% -10.5% Telecom, transportation, and information 898 1,791 2,634 3,686 905 1,714 2,576 YoY -21.2% -5.6% -2.2% 4.3% 0.8% -4.3% -2.2% Advertising expenses 740 1,339 1,961 2,687 557 1,177 1,821 YoY 21.1% -2.0% -12.6% -14.9% -24.7% -12.1% -7.1% Other expenses 65 143 229 305 80 153 246 YoY 22.6% 22.2% 23.1% 23.5% 23.1% 7.0% 7.4% Personnel 3,275 6,459 9,860 13,111 3,375 6,650 9,817 YoY 29.2% 24.5% 22.5% 20.8% 3.1% 3.0% -0.4% Real estate-related 1,221 2,510 3,756 5,058 1,018 2,081 3,145 YoY 38.9% 43.3% 39.8% 29.8% -16.6% -17.1% -16.3% Real estate 302 590 905 1,235 102 199 269 YoY 34.2% 47.9% 45.0% 12.9% -66.2% -66.3% -70.3% Furniture and fixtures 919 1,920 2,851 3,824 916 1,881 2,876 YoY 40.5% 41.9% 38.3% 36.4% -0.3% -2.0% 0.9% Office expenses 723 1,434 2,226 2,986 669 1,264 1,837 YoY -3.1% 5.1% 9.0% 9.5% -7.5% -11.9% -17.5% Outsourcing 707 1,404 2,177 2,923 651 1,228 1,780 YoY -3.0% 6.0% 10.1% 10.5% -7.9% -12.5% -18.2% Supplies 16 30 49 63 18 36 57 YoY 0.0% -25.0% -23.4% -22.2% 12.5% 20.0% 16.3% Depreciat ion 2,046 4,143 6,243 8,392 1,962 4,047 6,047 YoY -0.4% 1.4% 2.1% 3.4% -4.1% -2.3% -3.1% Taxes and dues 175 331 481 621 182 337 502 YoY 12.2% 12.6% 4.8% 20.3% 4.0% 1.8% 4.4% Others 659 1,349 1,869 2,470 579 1,019 1,489 YoY 47.4% 48.6% 39.8% 39.0% -12.1% -24.5% -20.3% SG&A breakdown FY03/19 FY03/20 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Total SG&A expenses 11,255 10,938 11,207 11,290 10,666 10,446 10,271 YoY 14.7% 14.7% 11.1% 8.4% -5.2% -4.5% -8.4% Trading-related expenses 3,157 2,810 2,997 3,087 2,881 2,834 2,831 YoY 5.2% 1.6% 0.3% -3.9% -8.7% 0.9% -5.5% Commissions paid 1,255 1,054 1,243 1,057 1,160 1,151 1,065 YoY 27.9% 9.6% 22.2% -9.3% -7.6% 9.2% -14.3% Stock exchange and association fees 199 186 203 177 179 182 165 YoY -7.4% -17.7% -11.4% -22.0% -10.1% -2.2% -18.7% Telecom, transportation, and information 898 893 843 1,052 905 809 862 YoY -21.2% 17.8% 5.9% 24.9% 0.8% -9.4% 2.3% Advertising expenses 740 599 622 726 557 620 644 YoY 21.1% -20.8% -29.1% -20.7% -24.7% 3.5% 3.5% Other expenses 65 78 86 76 80 73 93 YoY 22.6% 21.9% 24.6% 24.6% 23.1% -6.4% 8.1% Personnel expenses 3,275 3,184 3,401 3,251 3,375 3,275 3,167 YoY 29.2% 20.1% 18.9% 15.8% 3.1% 2.9% -6.9% Real estate-related 1,221 1,289 1,246 1,302 1,018 1,063 1,064 YoY 38.9% 47.7% 33.4% 7.4% -16.6% -17.5% -14.6% Real estate 302 288 315 330 102 97 70 YoY 34.2% 65.5% 40.0% -29.8% -66.2% -66.3% -77.8% Furniture and fixtures 919 1,001 931 973 916 965 995 YoY 40.5% 43.2% 31.3% 31.1% -0.3% -3.6% 6.9% Office expenses 723 711 792 760 669 595 573 YoY -3.1% 14.9% 17.0% 10.9% -7.5% -16.3% -27.7% Outsourcing 707 697 773 746 651 577 552 YoY -3.0% 17.1% 18.2% 11.7% -7.9% -17.2% -28.6% Supplies 16 14 19 14 18 18 21 YoY 0.0% -41.7% -20.8% -17.6% 12.5% 28.6% 10.5% Depreciat ion 2,046 2,097 2,100 2,149 1,962 2,085 2,000 YoY -0.4% 3.1% 3.4% 7.5% -4.1% -0.6% -4.8% Taxes and dues 175 156 150 140 182 155 165 YoY 12.2% 13.0% -9.1% 145.6% 4.0% -0.6% 10.0% Others 659 690 520 601 579 440 470 YoY 47.4% 49.7% 21.2% 36.6% -12.1% -36.2% -9.6% Source: Shared Research based on company data Note. Figures may differ from company materials due to differences in rounding methods. Note: Figures that exceed 1,000% YoY are denoted by “-.” Note: Quarterly performance figures calculated using differences in cumulative quarterly performance.

08/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Results by segment (Japan, US, and Asia-Pacific segments)

Cumulat ive Q3 FY03/19 Q4 FY03/19 Q1 FY03/20 Q2 FY03/20 Q3 FY03/20 (JPYmn) Japan US AP Japan US AP Japan US AP Japan US AP Japan US AP Operating revenue 21,636 17,073 611 27,729 22,798 829 6,119 5,915 206 12,320 11,919 422 19,125 17,356 601 YoY -7.5% 17.2% -12.1% -11.1% 14.0% -11.7% -14.7% 8.4% 6.7% -13.0% 8.3% 1.7% -11.6% 1.7% -1.6% Commissions received 10,485 9,175 301 13,301 12,014 406 2,737 2,860 93 5,483 5,730 186 8,797 8,428 276 YoY -16.9% 8.2% -25.3% -21.6% 1.3% -27.1% -22.4% -7.1% -3.1% -20.2% -3.7% -11.8% -16.1% -8.1% -8.3% Brokerage 8,438 6,575 299 10,650 8,573 404 2,127 2,136 93 4,267 4,268 185 6,997 6,156 274 YoY -19.8% 17.1% -25.4% -24.4% 6.0% -27.1% -25.6% -3.7% -3.1% -22.6% 1.3% -11.5% -17.1% -6.4% -8.4% Equity and ETF 8,194 1,530 299 10,339 2,033 404 2,061 466 93 4,130 921 185 6,791 1,302 274 Futures and options 244 5,045 - 311 6,540 - 66 1,670 - 137 3,348 - 206 4,855 - OSE FX ------Underw rit ing and dist ribut ion 57 - - 70 - - 32 - - 56 - - 78 - - Subscript ion and dist ribut ion 299 - - 355 - - 58 - - 119 - - 173 - - Ot her commissions 1,691 2,600 1 2,226 3,442 1 519 724 - 1,040 1,461 - 1,548 2,270 2 YoY 2.1% -9.2% -66.7% -1.3% -8.6% -66.7% -9.9% -16.0% - -10.7% -15.8% - -8.5% -12.7% 100.0% Net t rading income 3,376 - -2 4,534 - -3 1,104 - - 2,330 - -0 3,524 - - YoY 16.7% - - 17.3% - - 17.1% - - 11.4% - - 4.4% - - Financial income 7,712 6,684 211 9,807 9,221 301 2,252 2,705 81 4,463 5,406 163 6,735 7,873 213 YoY 7.6% 27.5% 21.3% 1.7% 32.8% 32.6% -15.9% 33.1% 32.8% -13.5% 23.9% 23.5% -12.7% 17.8% 0.9% Other operating revenue 62 967 102 85 1,282 126 26 281 32 45 519 73 68 744 112 Financial expenses 1,543 2,504 12 1,989 3,214 22 521 860 10 1,093 1,769 130 1,604 2,645 244 Net operating revenue 20,092 14,353 599 25,739 19,338 808 5,598 4,996 195 11,227 9,921 292 17,520 14,435 357 YoY -7.9% 13.7% -12.9% -11.3% 11.0% -13.2% -15.6% 8.2% 1.6% -14.4% 7.4% -29.3% -12.8% 0.6% -40.4% SG&A expenses 17,315 13,019 654 23,013 17,250 883 5,194 4,364 212 10,442 8,699 437 15,808 12,926 645 YoY 1.5% 4.9% -6.7% -1.7% 4.6% -4.2% -11.0% -0.6% 2.4% -9.6% 0.8% 0.2% -8.7% -0.7% -1.4% % of net operating revenue 86.2% 90.7% 109.2% 89.4% 89.2% 109.3% 92.8% 87.3% 108.7% 93.0% 87.7% 149.7% 90.2% 89.5% 180.7% Operat ing profit equivalent 2,778 1,334 -55 2,727 2,088 -75 404 633 -16 785 1,221 -145 1,712 1,509 -288 YoY -41.5% 511.9% - -51.4% 124.3% - -49.4% 175.2% - -49.6% 101.5% - -38.4% 13.1% - % of net operating revenue 13.8% 9.3% - 10.6% 10.8% - 7.2% 12.7% - 7.0% 12.3% - 9.8% 10.5% - Other revenue 1,794 - 19 1,943 - 31 94 - 10 171 - 17 165 - 31 Other expenses 1,637 105 8 3,422 110 4 41 13 7 70 28 5 90 30 15 Pre-tax profit 2,933 1,228 -44 1,246 1,977 -48 457 620 -13 886 1,194 -132 1,787 1,480 -271 YoY -39.6% 490.4% - -78.5% 601.1% - -52.3% 196.7% - -50.7% 109.5% - -39.1% 20.5% - % of net operating revenue 14.6% 8.6% - 4.8% 10.2% - 8.2% 12.4% - 7.9% 12.0% - 10.2% 10.3% - Profit 2,317 911 -55 1,131 1,439 -14 268 464 -16 533 1,008 -119 1,109 1,251 -240 YoY -28.1% -23.7% - -70.3% 13.0% - -73.8% 142.9% - -65.9% 127.0% - -52.1% 37.3% - Profit attributable to owners of the parent 2,423 911 -55 1,284 1,439 -14 313 464 -16 624 1,008 -119 1,247 1,251 -240 YoY -27.3% -23.7% - -67.6% 13.0% - -70.3% 142.9% - -61.8% 127.0% - -48.5% 37.3% - % of net operating revenue 12.1% 6.3% - 5.0% 7.4% - 5.6% 9.3% - 5.6% 10.2% - 7.1% 8.7% - Quarterly Q3 FY03/19 Q4 FY03/19 Q1 FY03/20 Q2 FY03/20 Q3 FY03/20 (JPYmn) Japan US AP Japan US AP Japan US AP Japan US AP Japan US AP Operating revenue 7,474 6,069 196 6,093 5,725 219 6,119 5,915 206 6,201 6,004 216 6,805 5,437 179 YoY -16.2% 23.2% -12.9% -22.1% 5.5% -10.2% -14.7% 8.4% 6.7% -11.3% 8.2% -2.7% -9.0% -10.4% -8.7% Commissions received 3,616 3,226 90 2,816 2,840 105 2,737 2,860 93 2,746 2,869 92 3,314 2,697 91 YoY -22.5% 16.0% -32.3% -35.3% -16.0% -31.4% -22.4% -7.1% -3.1% -17.8% 0.0% -19.3% -8.4% -16.4% 1.1% Brokerage 2,928 2,362 90 2,212 1,998 105 2,127 2,136 93 2,140 2,132 92 2,730 1,888 89 YoY -26.2% 26.2% -31.3% -38.0% -19.3% -31.4% -25.6% -3.7% -3.1% -19.3% 6.8% -18.6% -6.8% -20.1% -1.1% Equity and ETF 2,819 539 90 2,145 503 105 2,061 466 93 2,069 455 92 2,661 381 89 Futures and options 109 1,823 - 67 1,495 - 66 1,670 - 71 1,678 - 69 1,507 - OSE FX ------Underw rit ing and dist ribut ion 25 - - 13 - - 32 - - 24 - - 22 - - Subscript ion and dist ribut ion 137 - - 56 - - 58 - - 61 - - 54 - - Ot her commissions 526 864 - 535 842 - 519 724 - 521 737 - 508 809 2 YoY -4.0% -5.1% - -10.7% -6.9% - -9.9% -16.0% - -11.5% -15.7% - -3.4% -6.4% - Net t rading income 1,284 - -1 1,158 - - 1,104 - - 1,226 - -0 1,194 - - YoY 18.2% - - 19.1% - - 17.1% - - 6.7% - - -7.0% - - Financial income 2,554 2,320 79 2,095 2,537 90 2,252 2,705 81 2,211 2,701 82 2,272 2,466 50 YoY 1.3% 25.3% 38.6% -15.4% 48.9% 69.8% -15.9% 33.1% 32.8% -10.8% 15.8% 15.5% -11.0% 6.3% -36.7% Other operating revenue 20 305 27 23 314 24 26 281 32 19 238 42 23 225 38 Financial expenses 493 764 10 446 710 10 521 860 10 572 909 120 511 877 114 Net operating revenue 6,981 5,115 186 5,647 4,985 209 5,598 4,996 195 5,629 4,925 96 6,293 4,514 65 YoY -16.6% 20.8% -16.2% -21.8% 4.0% -14.0% -15.6% 8.2% 1.6% -13.1% 6.6% -56.6% -9.9% -11.7% -65.1% SG&A expenses 5,762 4,388 219 5,698 4,231 228 5,194 4,364 212 5,248 4,336 225 5,366 4,227 208 YoY -2.3% 4.4% 0.9% -10.4% 3.8% 3.6% -11.0% -0.6% 2.4% -8.2% 2.2% -1.3% -6.9% -3.7% -5.0% % of net operating revenue 82.5% 85.8% 117.7% 100.9% 84.9% 109.1% 92.8% 87.3% 108.7% 93.2% 88.0% 234.4% 85.3% 93.6% 320.0% Operat ing profit equivalent 1,219 728 -33 -51 754 -19 404 633 -16 381 589 -129 927 287 -143 YoY -50.7% - - - 5.8% - -49.4% 175.2% - -49.9% 56.2% - -24.0% -60.6% - % of net operating revenue 17.5% 14.2% - - 15.1% - 7.2% 12.7% - 6.8% 12.0% - 14.7% 6.4% - Other revenue 349 - 3 149 - 12 94 - 10 77 - 7 -6 - 14 Other expenses 432 69 - 1,785 5 -4 41 13 7 29 15 -2 20 2 10 Pre-tax profit 1,136 658 -29 -1,687 749 -4 457 620 -13 429 574 -119 901 286 -139 YoY -52.2% - - - 912.2% - -52.3% 196.7% - -48.8% 59.0% - -20.7% -56.5% - % of net operating revenue 16.3% 12.9% - - 15.0% - 8.2% 12.4% - 7.6% 11.7% - 14.3% 6.3% - Profit 754 467 -31 -1,186 528 41 268 464 -16 265 544 -103 576 243 -121 YoY -53.1% -52.4% - - 560.0% 2.5% -73.8% 142.9% - -50.8% 115.0% - -23.6% -48.0% - Profit attributable to owners of the parent 791 467 -31 -1,139 528 41 313 464 -16 311 544 -103 623 243 -121 YoY -51.8% -52.4% - - 560.0% 2.5% -70.3% 142.9% - -46.1% 115.0% - -21.2% -48.0% - % of net operating revenue 11.3% 9.1% - - 10.6% 19.6% 5.6% 9.3% - 5.5% 11.0% - 9.9% 5.4% - Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Figures that exceed 1,000% YoY are denoted by “-.” Note: Cumulative quarterly performance calculated as the total of quarterly results. Note: Starting with Q1 FY03/19, the company has changed its segmentation from three segments (Japan, US, and Asia-Pacific) to five segments (Japan, US, Asia-Pacific, Crypto Asset, and Investment). The table above reflects results as broken down into five operating segments.

09/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Results by segment (Crypto Asset and Investment segments)

Cumulat ive Q3 FY03/19 Q4 FY03/19 Q1 FY03/20 Q2 FY03/20 Q3 FY03/20 Crypto Crypto Crypto Crypto Crypto (JPYmn) Investment Investment Investment Investment Investment Asset Asset Asset Asset Asset Operating revenue 1,807 325 2,117 414 1,275 12 2,077 154 2,558 120 YoY - -50.7% - -85.1% 35.4% -94.6% 65.2% -51.1% 41.6% -63.1% Commissions received 166 - 186 - 75 - 153 - 200 - YoY - - - - -20.2% - 9.3% - 20.5% - Brokerage 3 - 3 - 29 - 43 - 46 - YoY ------2050.0% - 1433.3% - Equity and ETF ------Futures and options ------OSE FX 3 - 3 - 29 - 43 - 46 - Underw rit ing and dist ribut ion ------Subscript ion and dist ribut ion ------Ot her commissions 163 - 183 - 46 - 110 - 154 - YoY - - - - -50.0% - -19.1% - -5.5% - Net t rading income 1,639 - 1,929 - 1,200 - 1,924 - 2,359 - YoY - - - - 41.5% - 72.2% - 43.9% - Financial income - 325 - 414 - 12 - 154 - 120 YoY - -50.7% - -85.1% - -94.6% - -51.1% - -63.1% Other operating revenue ------Financial expenses 31 - 38 - 1 - 1 - 2 - Net operating revenue 1,775 325 2,077 414 1,274 12 2,075 154 2,556 120 YoY - -50.7% - -85.1% 35.2% -94.6% 65.1% -51.1% 44.0% -63.1% SG&A expenses 3,393 7 4,766 24 1,127 14 1,932 25 2,515 40 YoY - 40.0% - 60.0% -6.9% - -13.9% 525.0% -25.9% 471.4% % of net operating revenue 191.2% 2.2% 229.5% 5.8% 88.5% 116.7% 93.1% 16.2% 98.4% 33.3% Operat ing profit equivalent -1,618 318 -2,689 391 147 -2 143 129 41 79 YoY - -51.4% - -85.8% - - - -58.4% - -75.2% % of net operating revenue - 97.8% - 94.4% 11.5% - 6.9% 83.8% 1.6% 65.8% Other revenue 448 1 975 1 4 - 9 - 10 - Other expenses 2 9 19 8 8 - - - 27 - Pre-tax profit -1,171 309 -1,731 383 142 -2 151 129 24 79 YoY - -52.1% - -86.2% - - - -60.8% - -74.4% % of net operating revenue - 95.1% - 92.5% 11.1% - 7.3% 83.8% 0.9% 65.8% Profit -836 279 -1,825 326 99 -4 120 79 -18 47 YoY - -33.9% - -81.4% - - - -73.4% - -83.2% Profit attributable to owners of the parent -836 279 -1,825 326 99 -4 120 79 -18 47 YoY - -33.9% - -81.4% - - - -73.4% - -83.2% % of net operating revenue - 85.8% - 78.7% 7.8% - 5.8% 51.3% - 39.2% Quarterly Q3 FY03/19 Q4 FY03/19 Q1 FY03/20 Q2 FY03/20 Q3 FY03/20 Crypto Crypto Crypto Crypto Crypto (JPYmn) Investment Investment Investment Investment Investment Asset Asset Asset Asset Asset Operating revenue 550 10 310 89 1,275 12 802 142 481 -34 YoY - - - -95.8% 35.4% -94.6% 154.6% 52.7% -12.5% - Commissions received 26 - 20 - 75 - 78 - 47 - YoY - - - - -20.2% - 69.6% - 80.8% - Brokerage 1 - - - 29 - 14 - 3 - YoY ------200.0% - Equity and ETF ------Futures and options ------OSE FX 1 - - - 29 - 14 - 3 - Underw rit ing and dist ribut ion ------Subscript ion and dist ribut ion ------Ot her commissions 27 - 20 - 46 - 64 - 44 - YoY - - - - -50.0% - 45.5% - 63.0% - Net t rading income 522 - 290 - 1,200 - 724 - 435 - YoY - - - - 41.5% - 169.1% - -16.7% - Financial income - 10 - 89 - 12 - 142 - -34 YoY - - - -95.8% - -94.6% - 52.7% - - Other operating revenue ------Financial expenses 31 - 7 - 1 - - - 1 - Net operating revenue 518 10 302 89 1,274 12 801 142 481 -34 YoY - - - -95.8% 35.2% -94.6% 154.3% 52.7% -7.1% - SG&A expenses 1,149 3 1,373 17 1,127 14 805 11 583 15 YoY - 50.0% - 70.0% -6.9% 600.0% -22.1% 266.7% -49.3% 400.0% % of net operating revenue 221.8% 30.0% 454.6% 19.1% 88.5% 116.7% 100.5% 7.7% 121.2% -44.1% Operat ing profit equivalent -631 8 -1,071 73 147 -2 -4 131 -102 -50 YoY - - - -96.5% - - - 45.6% - - % of net operating revenue - 80.0% - 82.0% 11.5% - - 92.3% - - Other revenue 307 -18 527 - 4 - 5 - 1 - Other expenses 1 9 17 -1 8 - -8 - 27 - Pre-tax profit -324 -20 -560 74 142 -2 9 131 -127 -50 YoY - - - -96.5% - - - 36.5% - - % of net operating revenue - - - 83.1% 11.1% - 1.1% 92.3% - - Profit -237 -18 -989 47 99 -4 21 83 -138 -32 YoY - - - -96.5% - - - -41.1% - - Profit attributable to owners of the parent -237 -18 -989 47 99 -4 21 83 -138 -32 YoY - - - -96.5% - - - -41.1% - - % of net operating revenue - - - 52.8% 7.8% - 2.6% 58.5% - - Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Figures that exceed 1,000% YoY are denoted by “-.” Note: Cumulative quarterly performance calculated as the total of quarterly results. Note: Starting with Q1 FY03/19, the company has changed its segmentation from three segments (Japan, US, and Asia-Pacific) to five segments (Japan, US, Asia-Pacific, Crypto Asset, and Investment). The table above reflects results as broken down into five operating segments.

10/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

SG&A expenses by segment (Japan, US, and Asia-Pacific segments)

Cumulat ive Q3 FY03/19 Q4 FY03/19 Q1 FY03/20 Q2 FY03/20 Q3 FY03/20 (JPYmn) Japan US AP Japan US AP Japan US AP Japan US AP Japan US AP SG&A expenses 17,315 13,019 654 23,013 17,250 883 5,194 4,364 212 10,442 8,699 437 15,808 12,926 645 YoY 1.5% 4.9% -6.7% -1.7% 4.6% -4.2% -11.0% -0.6% 2.4% -9.6% 0.8% 0.2% -8.7% -0.7% -1.4% Trading-related expenses 3,854 4,600 193 5,134 6,126 269 1,147 1,476 61 2,324 2,942 128 3,593 4,329 190 YoY -7.1% 2.1% -24.3% -11.3% 1.4% -19.2% -16.3% -8.6% 0.0% -9.3% -4.2% -1.5% -6.8% -5.9% -1.6% Commissions paid 1,074 2,434 32 1,414 3,129 42 323 816 11 658 1,629 23 997 2,369 34 Stock exchange and association fees 498 92 0 645 121 0 146 33 0 294 67 0 460 66 0 Telecom, transportation, and information 1,270 1,043 72 1,731 1,483 96 418 327 25 844 644 50 1,283 966 77 Advertising expenses 918 931 83 1,212 1,264 124 236 253 25 483 510 54 757 801 78 Other 95 103 4 132 132 5 24 47 0 45 91 1 96 126 1 Personnel 3,067 5,292 300 4,046 6,943 390 1,074 1,797 98 2,172 3,558 199 3,309 5,233 288 YoY 2.1% 10.9% 13.2% 0.4% 7.3% 9.6% 4.7% 2.9% 2.1% 7.7% 2.8% -1.5% 7.9% -1.1% -4.0% Real estate-related 3,266 810 50 4,359 1,085 67 918 205 5 1,847 427 9 2,766 675 13 YoY 33.6% 7.4% 0.0% 21.8% 7.2% 1.5% -14.7% -21.5% -68.8% -16.6% -19.7% -72.7% -15.3% -16.7% -74.0% Real estate 399 264 46 538 353 62 47 27 4 94 53 7 136 83 10 Furniture and fixtures 2,869 546 4 3,823 732 5 871 178 1 1,753 375 2 2,630 593 3 Office and supplies 1,527 16 30 2,006 22 46 490 6 9 976 13 24 1,461 22 35 YoY -23.4% -33.3% 25.0% -24.8% -26.7% 48.4% -2.2% 20.0% 28.6% -2.4% 30.0% 41.2% -4.3% 37.5% 16.7% Outsourcing 1,496 0 28 1,967 0 44 478 0 9 953 0 24 1,427 0 35 Supplies 31 16 2 39 22 2 11 6 0 22 13 0 33 22 1 Depreciat ion 4,571 1,560 54 6,094 2,094 72 1,172 608 30 2,451 1,232 60 3,691 1,870 90 YoY 0.9% 2.4% -14.3% 1.0% 4.5% -11.1% -22.7% 21.6% 66.7% -19.6% 20.2% 66.7% -19.3% 19.9% 66.7% Taxes and dues 426 21 0 553 28 0 156 9 0 280 34 0 418 48 0 Other 601 717 29 818 950 39 238 263 8 393 493 16 569 749 27 Quarterly Q3 FY03/19 Q4 FY03/19 Q1 FY03/20 Q2 FY03/20 Q3 FY03/20 (JPYmn) Japan US AP Japan US AP Japan US AP Japan US AP Japan US AP SG&A expenses 5,762 4,388 219 5,698 4,231 228 5,194 4,364 212 5,248 4,336 225 5,366 4,227 208 YoY -2.3% 4.4% 0.9% -10.4% 3.8% 3.6% -11.0% -0.6% 2.4% -8.2% 2.2% -1.3% -6.9% -3.7% -5.0% Trading-related expenses 1,292 1,530 63 1,280 1,526 76 1,147 1,476 61 1,177 1,466 67 1,269 1,387 62 YoY -16.8% 8.4% -6.0% -22.0% -0.8% -2.6% -16.3% -8.6% 0.0% -1.2% 0.8% -2.9% -1.8% -9.3% -1.6% Commissions paid 375 872 11 340 695 10 323 816 11 335 813 12 339 740 11 Stock exchange and association fees 171 33 0 147 29 0 146 33 0 148 34 0 166 -1 0 Telecom, transportation, and information 429 281 26 461 440 24 418 327 25 426 317 25 439 322 27 Advertising expenses 282 304 24 294 333 41 236 253 25 247 257 29 274 291 24 Other 35 41 1 37 29 1 24 47 0 21 44 1 51 35 0 Personnel 1,050 1,832 98 979 1,651 90 1,074 1,797 98 1,098 1,761 101 1,137 1,675 89 YoY 0.0% 6.9% 3.2% -4.3% -2.6% -1.1% 4.7% 2.9% 2.1% 10.8% 2.7% -4.7% 8.3% -8.6% -9.2% Real estate-related 1,051 278 17 1,093 275 17 918 205 5 929 222 4 919 248 4 YoY 26.0% 3.7% 0.0% -3.5% 6.6% 6.3% -14.7% -21.5% -68.8% -18.4% -18.1% -76.5% -12.6% -10.8% -76.5% Real estate 133 92 16 139 89 16 47 27 4 47 26 3 42 30 3 Furniture and fixtures 919 185 1 954 186 1 871 178 1 882 197 1 877 218 1 Office and supplies 527 6 13 479 6 16 490 6 9 486 7 15 485 9 11 YoY -20.3% -45.5% 160.0% -28.8% 0.0% 128.6% -2.2% 20.0% 28.6% -2.6% 40.0% 50.0% -8.0% 50.0% -15.4% Outsourcing 515 0 13 471 0 16 478 0 9 475 0 15 474 0 11 Supplies 12 6 0 8 6 0 11 6 0 11 7 0 11 9 1 Depreciat ion 1,522 535 18 1,523 534 18 1,172 608 30 1,279 624 30 1,240 638 30 YoY 2.3% 3.1% -14.3% 1.5% 11.0% 0.0% -22.7% 21.6% 66.7% -16.6% 18.9% 66.7% -18.5% 19.3% 66.7% Taxes and dues 143 6 0 127 7 0 156 9 0 124 25 0 138 14 0 Others 176 200 10 217 233 10 238 263 8 155 230 8 176 256 11 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Figures that exceed 1,000% YoY are denoted by “-.” Note: Cumulative quarterly performance calculated as the total of quarterly results. Note: Depreciation for US and Asia-Pacific segments include depreciation of identified intangible assets at the time of acquisition of TradeStation Group and Monex Boom Securities Group. Note: Starting with Q1 FY03/19, the company has changed its segmentation from three segments (Japan, US, and Asia-Pacific) to five segments (Japan, US, Asia-Pacific, Crypto Asset, and Investment). The table above reflects results as broken down into five operating segments.

11/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

SG&A expenses by segment (Crypto Asset and Investment segments)

Cumulat ive Q3 FY03/19 Q4 FY03/19 Q1 FY03/20 Q2 FY03/20 Q3 FY03/20 Crypto Crypto Crypto Crypto Crypto (JPYmn) Investment Investment Investment Investment Investment Asset Asset Asset Asset Asset SG&A expenses 3,393 7 4,766 24 1,127 14 1,932 25 2,515 40 YoY - 75.0% - 84.6% -6.9% - -13.9% 525.0% -25.9% 471.4% Trading-related expenses 465 4 709 4 245 3 425 4 594 8 YoY - 300.0% - -55.6% 61.2% 200.0% 43.6% 100.0% 27.7% 100.0% Commissions paid 160 4 214 2 60 1 106 1 135 2 Stock exchange and association fees ------Telecom, transportation, and information 250 - 377 - 135 - 176 - 251 - Advertising expenses 28 - 84 2 42 1 129 1 188 3 Other 27 - 35 - 8 1 14 2 19 3 Personnel 1,200 - 1,726 5 399 7 707 13 965 20 YoY - - - 400.0% -1.7% - -9.2% - -19.6% - Real estate-related 196 - 282 - 25 - 46 - 40 - YoY - - - - -64.8% - -62.3% - -79.6% - Real estate 196 - 282 - 25 - 46 - 40 - Furniture and fixtures ------Office and supplies 653 -1 911 2 163 1 248 2 314 4 YoY - - - - -22.4% - -39.2% - -51.9% - Outsourcing 653 -1 911 2 163 1 248 2 314 4 Supplies ------Depreciat ion 58 - 132 - 152 - 305 - 397 - YoY ------824.2% - 584.5% - Taxes and dues 33 - 38 2 16 1 22 2 33 4 Other 788 4 968 11 127 1 179 2 174 3 Quarterly Q3 FY03/19 Q4 FY03/19 Q1 FY03/20 Q2 FY03/20 Q3 FY03/20 Crypto Crypto Crypto Crypto Crypto (JPYmn) Investment Investment Investment Investment Investment Asset Asset Asset Asset Asset SG&A expenses 1,149 3 1,373 17 1,127 14 805 11 583 15 YoY - 200.0% - 88.9% -6.9% - -22.1% 266.7% -49.3% 400.0% Trading-related expenses 169 2 244 - 245 3 180 1 169 4 YoY - 100.0% - - 61.2% 200.0% 25.0% 0.0% 0.0% 100.0% Commissions paid 41 2 54 -2 60 1 46 - 29 1 Stock exchange and association fees 0 - 0 - 0 - 0 - 0 - Telecom, transportation, and information 107 - 127 - 135 - 41 - 75 - Advertising expenses 11 - 56 2 42 1 87 - 59 2 Other 9 - 8 - 8 1 6 1 5 1 Personnel 421 - 526 5 399 7 308 6 258 7 YoY - - - - -1.7% - -17.4% - -38.7% - Real estate-related 74 - 86 - 25 - 21 - -6 - YoY - - - - -64.8% - -58.8% - - - Real estate 74 - 86 - 25 - 21 - -6 - Furniture and fixtures 0 - 0 - 0 - 0 - 0 - Office and supplies 245 -1 258 3 163 1 85 1 66 2 YoY - - - - -22.4% - -57.1% - -73.1% - Outsourcing 245 -1 258 3 163 1 85 1 66 2 Supplies 0 - 0 - 0 - 0 - 0 - Depreciat ion 25 - 74 - 152 - 153 - 92 - YoY ------628.6% - 268.0% - Taxes and dues 0 - 5 2 16 1 6 1 11 2 Other 216 1 180 7 127 1 52 1 -5 1 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Figures that exceed 1,000% YoY are denoted by “-.” Note: Cumulative quarterly performance calculated as the total of quarterly results. Note: Starting with Q1 FY03/19, the company has changed its segmentation from three segments (Japan, US, and Asia-Pacific) to five segments (Japan, US, Asia-Pacific, Crypto Asset, and Investment). The table above reflects results as broken down into five operating segments.

12/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Monex, Inc. results Cumulat ive FY03/19 FY03/20 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Operating revenue 7,749 14,844 22,809 29,014 6,751 13,142 20,546 YoY 0.4% -2.0% -6.9% -10.6% -12.9% -11.5% -9.9% Net operating revenue 6,713 13,267 20,324 26,045 5,703 11,456 17,795 YoY 0.3% -2.1% -7.3% -11.4% -15.0% -13.7% -12.4% Commissions received 3,538 6,892 10,523 13,369 2,748 5,509 8,862 YoY -9.7% -13.9% -17.1% -21.8% -22.3% -20.1% -15.8% Brokerage 2,885 5,564 8,522 10,778 2,154 4,325 7,106 YoY -12.3% -15.9% -19.7% -24.3% -25.3% -22.3% -16.6% Equity and ETF 2,819 5,429 8,278 10,467 2,088 4,188 6,900 YoY -12.1% -15.9% -20.1% -24.6% -25.9% -22.9% -16.6% Futures and options 66 135 244 310 66 137 205 YoY -19.5% -14.6% -3.2% -10.9% 0.0% 1.5% -16.0% Underw rit ing and dist ribut ion 22 31 56 69 32 56 78 YoY 340.0% -75.2% -64.1% -59.6% 45.5% 80.6% 39.3% Subscript ion and dist ribut ion 70 161 298 355 58 118 173 YoY -20.5% -2.4% 4.6% -22.5% -17.1% -26.7% -41.9% Ot her commissions 560 1,135 1,645 2,165 503 1,009 1,503 YoY 5.5% 3.7% 0.7% -2.4% -10.2% -11.1% -8.6% Net t rading income 943 2,092 3,372 4,530 1,103 2,328 3,522 YoY 6.9% 16.0% 18.8% 17.3% 17.0% 11.3% 4.4% Financial income 3,246 5,811 8,843 11,018 2,873 5,252 8,084 YoY 12.4% 10.0% 7.0% 2.2% -11.5% -9.6% -8.6% Other operating revenue 20 46 70 96 25 51 76 YoY -28.6% -14.8% -90.0% -86.7% 25.0% 10.9% 8.6% SG&A expenses 5,932 11,726 17,593 23,282 5,181 10,521 15,940 YoY 2.5% 1.5% -0.8% -3.1% -12.7% -10.3% -9.4% % of net operating revenue 88.4% 88.4% 86.6% 89.4% 90.8% 91.8% 89.6% Operating profit 781 1,540 2,731 2,762 521 934 1,855 YoY -13.4% -22.5% -34.6% -48.6% -33.3% -39.4% -32.1% % of net operating revenue 11.6% 11.6% 13.4% 10.6% 9.1% 8.2% 10.4% Pre-tax profit 828 1,597 2,794 964 532 948 1,877 YoY -15.9% -23.8% -34.5% -82.2% -35.7% -40.6% -32.8% % of net operating revenue 12.3% 12.0% 13.7% 3.7% 9.3% 8.3% 10.5% Net income 576 1,100 1,931 688 373 653 1,290 YoY -16.9% -23.9% -34.4% -81.6% -35.2% -40.6% -33.2% % of net operating revenue 8.6% 8.3% 9.5% 2.6% 6.5% 5.7% 7.2% Quarterly performance FY03/19 FY03/20 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Operating revenue 7,749 7,095 7,965 6,205 6,751 6,391 7,404 YoY 0.4% -4.4% -14.8% -22.1% -12.9% -9.9% -7.0% Net operating revenue 6,713 6,554 7,057 5,721 5,703 5,753 6,339 YoY 0.3% -4.4% -15.7% -23.5% -15.0% -12.2% -10.2% Commissions 3,538 3,354 3,631 2,846 2,748 2,761 3,353 YoY -9.7% -17.9% -22.5% -35.3% -22.3% -17.7% -7.7% YoY 2,885 2,679 2,958 2,256 2,154 2,171 2,781 YoY -12.3% -19.4% -26.1% -37.8% -25.3% -19.0% -6.0% Equity and ETF 2,819 2,610 2,849 2,189 2,088 2,100 2,712 YoY -12.1% -19.6% -27.1% -38.0% -25.9% -19.5% -4.8% Futures and options 66 69 109 66 66 71 68 YoY -19.5% -9.2% 16.0% -31.3% 0.0% 2.9% -37.6% Underw rit ing and dist ribut ion 22 9 25 13 32 24 22 YoY 340.0% -92.5% -19.4% -13.3% 45.5% 166.7% -12.0% Subscript ion and dist ribut ion 70 91 137 57 58 60 55 YoY -20.5% 18.2% 14.2% -67.1% -17.1% -34.1% -59.9% Ot her commissions 560 575 510 520 503 506 494 YoY 5.5% 2.1% -5.4% -11.1% -10.2% -12.0% -3.1% Net t rading income 943 1,149 1,280 1,158 1,103 1,225 1,194 YoY 6.9% 24.6% 23.7% 13.2% 17.0% 6.6% -6.7% Financial income 3,246 2,565 3,032 2,175 2,873 2,379 2,832 YoY 12.4% 7.2% 1.7% -13.7% -11.5% -7.3% -6.6% Other operating revenue 20 26 24 26 25 26 25 YoY -28.6% 0.0% -96.3% 4.0% 25.0% 0.0% 4.2% SG&A expenses 5,932 5,794 5,867 5,689 5,181 5,340 5,419 Taxes and dues 2.5% 0.4% -5.1% -9.4% -12.7% -7.8% -7.6% % of net operating revenue 88.4% 88.4% 83.1% 99.4% 90.8% 92.8% 85.5% Operating profit 781 759 1,191 31 521 413 921 YoY -13.4% -30.1% -45.5% -97.4% -33.3% -45.6% -22.7% % of net operating revenue 11.6% 11.6% 16.9% 0.5% 9.1% 7.2% 14.5% Pre-tax profit 828 769 1,197 -1,830 532 416 929 YoY -15.9% -30.9% -44.9% - -35.7% -45.9% -22.4% % of net operating revenue 12.3% 11.7% 17.0% - 9.3% 7.2% 14.7% Net income 576 524 831 -1,243 373 280 637 YoY -16.9% -30.3% -44.6% - -35.2% -46.6% -23.3% % of net operating revenue 8.6% 8.0% 11.8% - 6.5% 4.9% 10.0% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Figures that exceed 1,000% YoY are denoted by “-.”

13/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Key metrics at Monex, Inc. (Cumulat ive) FY03/19 FY03/20 Metrics related to commissions received Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Retail investors trading value on TSE and NSE (JPYtn) 72.2 139.1 212.3 274.3 56.8 112.3 175.4 YoY 3.7% 0.6% -7.0% -13.5% -21.3% -19.3% -17.4% Monex, Inc. share 5.3% 5.2% 5.2% 5.2% 5.1% 5.1% 5.2% Monex, Inc. equity and ETF trading value (JPYtn) 3.8 7.3 11.1 14.2 2.9 5.8 9.1 YoY -0.5% -1.8% -8.0% -15.5% -24.1% -20.9% -17.5% Cash 1.8 3.4 5.2 6.5 1.2 2.4 3.9 YoY -15.9% -18.3% -22.1% -27.4% -33.0% -29.0% -24.3% Margin 2.0 3.9 5.9 7.7 1.7 3.3 5.2 YoY 19.3% 19.3% 9.4% -1.8% -15.9% -13.8% -11.5% Equit y brokerage commission rat e 0.074% 0.075% 0.075% 0.074% 0.072% 0.073% 0.076% Metrics related to net trading income FX trading value (JPYtn) 7.4 14.3 25.2 39.7 12.8 29.3 43.4 YoY 11.0% 4.9% 18.2% 27.7% 73.0% 104.3% 72.6% Met rics relat ed t o net financial income Margin trading balance (JPYbn) 201 178 158 157 152 153 161 YoY 21.5% 9.1% -16.4% -23.6% -24.1% -14.4% 1.9% Avg. margin trading balance (month end; JPYbn) 203 192 187 179 152 154 155 YoY 26.9% 17.1% 10.3% 0.8% -25.2% -20.1% -16.9% (Quarterly) 19年3月期 20年3月期 Metrics related to commissions received 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q Retail investors trading value on TSE and NSE (JPYtn) 72.2 66.9 73.2 62.0 56.8 55.5 63.1 YoY 3.7% -2.5% -18.8% -30.0% -21.3% -17.1% -13.7% Monex, Inc. share 5.3% 5.2% 5.2% 5.0% 5.1% 5.2% 5.4% Monex, Inc. equity and ETF trading value (JPYtn) 3.8 3.5 3.8 3.1 2.9 2.9 3.4 YoY -0.5% -3.2% -17.9% -34.6% -24.1% -17.4% -11.0% Cash 1.8 1.6 1.8 1.3 1.2 1.2 1.5 YoY -15.9% -20.9% -28.5% -42.6% -33.0% -24.5% -15.4% Margin 2.0 1.9 2.0 1.8 1.7 1.7 1.9 YoY 19.3% 19.4% -5.7% -26.8% -15.9% -11.4% -7.1% Equit y brokerage commission rat e 0.074% 0.075% 0.075% 0.071% 0.072% 0.073% 0.080% Metrics related to net trading income FX trading value (JPYtn) 7.4 6.9 10.8 14.5 12.8 16.5 14.1 YoY 11.0% -0.9% 41.9% 48.4% 73.0% 137.8% 30.6% Margin transaction balance and market share (lon Margin trading balance (JPYbn) 201 178 158 157 152 153 161 YoY 21.5% 9.1% -16.4% -23.6% -24.1% -14.4% 1.9% Avg. margin trading balance (month end; JPYbn) 203 182 175 157 152 156 158 YoY 26.9% 7.8% -2.1% -23.0% -25.2% -14.4% -10.0% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Trading value of retail investors on the two markets is based on aggregate monthly totals from Japan Exchange Group Monthly Statistics Report.

14/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

US segment results

Cumulat ive FY03/19 FY03/20 (USD'000) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Operating revenue 50,162 99,804 154,003 205,863 53,939 109,522 159,497 YoY 16.8% 15.1% 18.1% 14.0% 7.5% 9.7% 3.6% Commissions received 28,297 53,949 82,759 108,485 26,083 52,654 77,450 YoY 8.5% 5.4% 9.1% 1.3% -7.8% -2.4% -6.4% Brokerage 20,377 38,211 59,310 77,410 19,477 39,222 56,580 YoY 19.4% 13.6% 18.1% 6.0% -4.4% 2.6% -4.6% Equity and ETF 4,731 8,989 13,802 18,358 4,248 8,460 11,964 Futures and options 15,646 29,221 45,507 59,051 15,229 30,762 44,614 Ot her commissions 7,920 15,738 23,449 31,075 6,606 13,432 20,870 YoY -12.1% -10.3% -8.4% -8.6% -16.6% -14.7% -11.0% Net t rading income ------Financial income 18,680 39,581 60,291 83,264 24,667 49,677 72,349 YoY 29.3% 29.9% 28.5% 32.8% 32.1% 25.5% 20.0% Sales revenue 178 268 2,231 2,544 625 2,422 2,863 Other operating revenue 3,007 6,007 8,723 11,572 2,565 4,771 6,837 Financial expenses 7,549 15,784 22,587 29,025 7,839 16,253 24,310 Cost of revenue 155 233 1,944 2,216 544 2,109 2,530 Net operating revenue 42,458 83,787 129,471 174,621 45,557 91,162 132,659 YoY 12.1% 11.1% 14.6% 11.0% 7.3% 8.8% 2.5% SG&A expenses 40,345 78,287 117,437 155,763 39,789 79,938 118,792 YoY 6.6% 6.1% 5.8% 4.6% -1.4% 2.1% 1.2% Operat ing profit equivalent 2,113 5,500 12,034 18,858 5,768 11,224 13,867 Yoy - 232.9% 518.1% 124.4% 173.0% 104.1% 15.2% Other revenue 1 1 1 1 3 6 9 Other expenses 193 329 953 1,001 118 259 278 Pre-tax profit 1,921 5,172 11,082 17,858 5,653 10,971 13,598 YoY - 221.2% 496.4% 602.5% 194.3% 112.1% 22.7% Profit 1,757 4,025 8,218 12,996 4,232 9,262 11,495 YoY - 111.6% -23.1% 13.0% 140.9% 130.1% 39.9% Profit attributable to owners of the parent 1,757 4,025 8,218 12,996 4,232 9,262 11,495 YoY - 111.6% -23.1% 13.0% 140.9% 130.1% 39.9% Quarterly FY03/19 FY03/20 (USD'000) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Operating revenue 50,162 49,642 54,199 51,860 53,939 55,583 49,975 YoY 16.8% 13.5% 24.0% 3.3% 7.5% 12.0% -7.8% Commissions received 28,297 25,652 28,810 25,726 26,083 26,571 24,796 YoY 8.5% 2.1% 16.9% -17.6% -7.8% 3.6% -13.9% Brokerage 20,377 17,834 21,099 18,100 19,477 19,745 17,358 YoY 19.4% 7.6% 27.2% -20.7% -4.4% 10.7% -17.7% Equity and ETF 4,731 4,258 4,813 4,556 4,248 4,212 3,504 Futures and options 15,646 13,575 16,286 13,544 15,229 15,533 13,852 Ot her commissions 7,920 7,818 7,711 7,626 6,606 6,826 7,438 YoY -12.1% -8.4% -4.3% -9.2% -16.6% -12.7% -3.5% Net t rading income ------Financial income 18,680 20,901 20,710 22,973 24,667 25,010 22,672 YoY 29.3% 30.4% 26.0% 45.3% 32.1% 19.7% 9.5% Sales revenue 178 90 1,963 313 625 1,797 441 Other operating revenue 3,007 3,000 2,716 2,849 2,565 2,206 2,066 Financial expenses 7,549 8,235 6,803 6,438 7,839 8,414 8,057 Cost of revenue 155 78 1,711 272 544 1,565 421 Net operating revenue 42,458 41,329 45,684 45,150 45,557 45,605 41,497 YoY 12.1% 10.1% 21.6% 1.9% 7.3% 10.3% -9.2% SG&A expenses 40,345 37,942 39,150 38,326 39,789 40,149 38,854 YoY 6.6% 5.7% 5.1% 1.3% -1.4% 5.8% -0.8% Operat ing profit equivalent 2,113 3,387 6,534 6,824 5,768 5,456 2,643 Yoy - 106.4% - 5.7% 173.0% 61.1% -59.6% Other revenue 1 - - - 3 3 3 Other expenses 193 136 624 48 118 141 19 Pre-tax profit 1,921 3,251 5,910 6,776 5,653 5,318 2,627 YoY - 102.8% - 890.6% 194.3% 63.6% -55.5% Profit 1,757 2,268 4,193 4,778 4,232 5,030 2,233 YoY - 19.6% -52.2% 481.3% 140.9% 121.8% -46.7% Profit attributable to owners of the parent 1,757 2,268 4,193 4,778 4,232 5,030 2,233 YoY - 19.6% -52.2% 481.3% 140.9% 121.8% -46.7% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Figures that exceed 1,000% YoY are denoted by “-.”

15/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

US segment: SG&A breakdown

Cumulat ive FY03/19 FY03/20 (USD'000) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 SG&A expenses 40,345 78,287 117,437 155,763 39,789 79,938 118,792 YoY 6.6% 6.1% 5.8% 4.6% -1.4% 2.1% 1.2% T rading-relat ed 14,849 27,846 41,495 55,317 13,458 27,033 39,784 YoY -4.4% 0.2% 3.0% 1.4% -9.4% -2.9% -4.1% Commissions paid 7,929 14,165 21,952 28,253 7,444 14,976 21,777 Stock exchange and association fees 255 530 823 1,087 297 615 607 Telecom, transportation, and information 3,484 6,912 9,405 13,384 2,979 5,913 8,874 Advertising expenses 2,937 5,686 8,399 11,415 2,306 4,689 7,361 Other 244 554 917 1,179 432 840 1,166 Personnel 16,053 31,388 47,741 62,699 16,385 32,696 48,092 YoY 20.1% 14.1% 11.8% 7.4% 2.1% 4.2% 0.7% Real estate-related 2,402 4,828 7,308 9,799 1,871 3,929 6,210 YoY 18.0% 10.5% 8.3% 7.2% -22.1% -18.6% -15.0% Real estate 752 1,561 2,386 3,191 243 480 756 Furniture and fixtures 1,651 3,268 4,923 6,609 1,628 3,449 5,454 Office and supplies 50 91 147 199 53 122 206 YoY 0.0% -18.8% -31.0% -24.9% 6.0% 34.1% 40.1% Outsourcing ------Supplies 50 91 147 199 53 122 206 Depreciat ion 4,601 9,301 14,079 18,916 5,543 11,318 17,178 YoY 2.6% 3.1% 3.3% 4.5% 20.5% 21.7% 22.0% Taxes and dues 78 137 194 254 79 307 436 Other 2,312 4,696 6,474 8,581 2,400 4,533 6,884 Quarterly FY03/19 FY03/20 (USD'000) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 SG&A expenses 40,345 37,942 39,150 38,326 39,789 40,149 38,854 YoY 6.6% 5.7% 5.1% 1.3% -1.4% 5.8% -0.8% T rading-relat ed 14,849 12,997 13,649 13,822 13,458 13,575 12,751 YoY -4.4% 6.0% 9.2% -3.1% -9.4% 4.4% -6.6% Commissions paid 7,929 6,236 7,787 6,301 7,444 7,532 6,801 Stock exchange and association fees 255 275 293 264 297 318 -8 Telecom, transportation, and information 3,484 3,428 2,493 3,979 2,979 2,934 2,961 Advertising expenses 2,937 2,749 2,713 3,016 2,306 2,383 2,672 Others 244 310 363 262 432 408 326 Personnel 16,053 15,335 16,353 14,958 16,385 16,311 15,396 YoY 20.1% 8.5% 7.5% -4.7% 2.1% 6.4% -5.9% Real estate-related 2,402 2,426 2,480 2,491 1,871 2,058 2,281 YoY 18.0% 3.9% 4.3% 4.1% -22.1% -15.2% -8.0% Real estate 752 809 825 805 243 237 276 Furniture and fixtures 1,651 1,617 1,655 1,686 1,628 1,821 2,005 Office and supplies 50 41 56 52 53 69 84 YoY 0.0% -33.9% -44.6% 0.0% 6.0% 68.3% 50.0% Outsourcing ------Supplies 50 41 56 52 53 69 84 Depreciat ion 4,601 4,700 4,778 4,837 5,543 5,775 5,860 YoY 2.6% 3.5% 3.9% 8.3% 20.5% 22.9% 22.6% Taxes and dues 78 59 57 60 79 228 129 Other 2,312 2,384 1,778 2,107 2,400 2,133 2,351 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

Key metrics for US segment

Cumulat ive FY03/19 FY03/20 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Operating days 64.0 126.5 188.5 249.5 63.0 126.5 189.5 Daily average revenue trades (DARTs) 77,880 73,661 79,092 78,989 79,778 83,469 82,333 YoY 15.9% 12.9% 22.4% 12.0% 2.4% 13.3% 4.1% Number of trades ('000) 4,984 9,318 14,909 19,708 5,026 10,559 15,602 Brokerage commissions (USD'000) 20,377 38,211 59,310 77,410 19,477 39,222 56,580 YoY 19.4% 13.6% 18.1% 6.0% -4.4% 2.6% -4.6% Commissions per trade (USD) 4.1 4.1 4.0 3.9 3.9 3.7 3.6 Quarterly FY03/19 FY03/20 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Operating days 64.0 62.5 62.0 61.0 63.0 63.5 63.0 VIX 15.3 12.9 21.1 16.5 15.2 16.0 14.0 YoY 34.2% 17.6% 104.2% -5.1% -1.0% 24.1% -33.5% Daily average revenue trades (DARTs) 77,880 69,341 90,173 78,670 79,778 87,131 80,052 YoY 15.9% 9.5% 42.4% -11.3% 2.4% 25.7% -11.2% Number of trades ('000) 4,984 4,334 5,591 4,799 5,026 5,533 5,043 Brokerage commissions (USD'000) 20,377 17,834 21,099 18,100 19,477 19,745 17,358 YoY 19.4% 7.6% 27.2% -20.7% -4.4% 10.7% -17.7% Commissions per trade (USD) 4.1 4.1 3.8 3.8 3.9 3.6 3.4 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Number of trades calculated as DARTs times number of trading days.

16/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Number of customer accounts at top five online brokerages FY03/19 FY03/20 ('000) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 SBI Securities 4,362 4,448 4,540 4,631 4,718 4,952 YoY 11.2% 11.1% 10.5% 8.7% 8.1% 11.3% Rakuten Securities - 2,858 - 3,205 - 3,377 YoY - 20.5% - 22.8% - 18.1% Monex, Inc. 1,780 1,793 1,807 1,818 1,825 1,833 YoY 4.1% 3.9% 3.7% 3.2% 2.6% 2.2% Mat sui Securit ies 1,147 1,157 1,170 1,184 1,196 1,204 YoY 3.9% 3.9% 4.3% 4.2% 4.2% 4.1% kabu.com Securities 1,096 1,103 1,110 1,118 1,124 1,131 YoY 3.6% 3.2% 3.0% 2.8% 2.6% 2.6% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

Customer assets in custody at top five online brokerages FY03/19 FY03/20 (JPYbn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 SBI Securities 11,378 12,028 10,416 11,413 11,262 11,650 YoY 16.0% 16.0% -5.0% -0.1% -1.0% -3.1% Rakuten Securities 5,184 5,515 5,076 5,598 5,802 6,183 YoY 18.7% 20.3% 2.6% 11.4% 11.9% 12.1% Monex, Inc. 4,283 4,409 3,831 4,059 4,014 4,106 YoY 7.7% 7.6% -11.5% -4.0% -6.3% -6.9% Mat sui Securit ies 2,535 2,601 2,243 2,340 2,291 2,317 YoY 5.2% 6.1% -13.2% -7.3% -9.6% -10.9% kabu.com Securities 2,365 2,396 2,106 2,205 2,229 2,218 YoY 5.5% 5.2% -12.7% -5.6% -5.8% -7.4% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

Equity trading value at top five online brokerages Quarterly FY03/19 FY03/20 (JPYt n) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Retail investors trading value on TSE and NSE 72.2 66.9 73.2 62.0 56.8 55.5 YoY 3.7% -2.5% -18.8% -30.3% -21.3% -17.1% SBI Securities 25.9 24.4 26.7 22.2 20.0 19.8 YoY 8.0% 1.2% -15.8% -29.2% -22.7% -18.7% % of total retail investors trading value 35.9% 36.4% 36.5% 35.9% 35.3% 35.7% Rakuten Securities 12.7 12.6 14.2 13.0 12.4 13.1 YoY 13.7% 12.8% -2.0% -13.5% -2.8% 3.6% % of total retail investors trading value 17.6% 18.8% 19.5% 21.0% 21.8% 23.5% Monex, Inc. 3.8 3.5 3.8 3.1 2.9 2.9 YoY -0.5% -3.2% -17.9% -34.6% -24.1% -17.4% % of total retail investors trading value 5.3% 5.2% 5.2% 5.0% 5.1% 5.2% Mat sui Securit ies 7.9 6.8 7.3 6.5 6.0 5.7 YoY -7.9% -15.5% -25.1% -30.3% -23.7% -15.6% % of total retail investors trading value 10.9% 10.1% 9.9% 10.6% 10.6% 10.3% kabu.com Securities 6.4 5.9 6.4 5.7 4.9 4.8 YoY 3.4% -3.4% -18.8% -26.9% -22.4% -17.2% % of total retail investors trading value 8.8% 8.7% 8.7% 9.2% 8.7% 8.7% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

Brokerage commissions at top five online brokerages FY03/19 FY03/20 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Five major online brokers total 20,054 19,295 21,241 17,250 16,332 16,680 YoY -6.7% -9.5% -18.1% -31.3% -18.6% -13.6% SBI Securities 7,667 7,572 8,428 6,932 6,639 6,777 YoY -1.5% -3.1% -12.4% -25.5% -13.4% -10.5% Rakuten Securities 3,804 3,779 4,085 3,420 3,295 3,453 YoY -9.9% -10.2% -14.6% -25.9% -13.4% -8.6% Monex, Inc. 2,885 2,679 2,958 2,256 2,154 2,171 YoY -12.3% -19.4% -26.1% -37.8% -25.3% -19.0% Mat sui Securit ies 3,848 3,543 3,840 3,054 2,843 2,838 YoY -7.3% -11.4% -24.4% -39.1% -26.1% -19.9% kabu.com Securities 1,850 1,722 1,930 1,588 1,401 1,441 YoY -9.6% -12.9% -21.1% -37.9% -24.3% -16.3% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

17/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Brokerage commission rates at top five online brokerages FY03/19 FY03/20 (basis points) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 SBI Securities 3.0 3.1 3.2 3.1 3.3 3.4 YoY change -0.3 -0.1 0.1 0.2 0.4 0.3 Rakuten Securities 3.0 3.0 2.9 2.6 2.7 2.6 YoY change -0.8 -0.8 -0.4 -0.4 -0.3 -0.4 Monex, Inc. 7.6 7.7 7.8 7.3 7.5 7.6 YoY change -1.0 -1.5 -0.9 -0.4 -0.1 -0.1 Mat sui Securit ies 4.9 5.2 5.3 4.7 4.7 5.0 YoY change 0.0 0.2 0.0 -0.7 -0.2 -0.3 kabu.com Securities 2.9 2.9 3.0 2.8 2.8 3.0 YoY change -0.4 -0.3 -0.1 -0.5 -0.1 0.0 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

Margin trading balances at top five online brokerages FY03/19 FY03/20 (JPYbn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Margin trading balance on TSE and NSE 4,077 3,711 3,132 3,454 3,062 3,089 YoY 16.3% 3.5% -20.0% -19.5% -24.9% -16.8% SBI Securities 946 914 784 838 722 780 YoY 20.2% 7.2% -15.4% -16.3% -23.7% -14.7% % of total margin trading balance 23.2% 24.6% 25.0% 24.3% 23.6% 25.3% Rakuten Securities 456 436 373 405 372 410 YoY 23.5% 12.2% -13.7% -13.5% -18.6% -6.2% % of total margin trading balance 11.2% 11.8% 11.9% 11.7% 12.1% 13.3% Monex, Inc. 201 178 158 157 152 153 YoY 21.5% 9.1% -16.4% -23.5% -24.1% -14.4% % of total margin trading balance 4.9% 4.8% 5.0% 4.5% 5.0% 4.9% Mat sui Securit ies 315 284 223 233 223 229 YoY 13.3% 3.3% -29.2% -29.9% -29.2% -19.1% % of total margin trading balance 7.7% 7.6% 7.1% 6.7% 7.3% 7.4% kabu.com Securities 263 301 243 299 223 270 YoY 9.9% -1.1% -10.7% -10.9% -15.5% -10.2% % of total margin trading balance 6.5% 8.1% 7.8% 8.7% 7.3% 8.7% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

Financial income at top five online brokerages FY03/19 FY03/20 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Five major online brokers total 26,842 24,942 25,107 21,537 21,663 21,000 YoY 17.3% 3.0% -9.9% -18.3% -19.3% -15.8% SBI Securities 11,485 11,144 10,656 8,897 9,008 9,062 YoY 17.7% 2.7% -13.6% -24.3% -21.6% -18.7% Financial income / Margin trading balance 1.2% 1.2% 1.3% 1.1% 1.2% 1.2% Rakuten Securities 5,906 5,630 5,633 5,906 4,863 4,853 YoY 28.6% 5.3% -4.7% -0.3% -17.7% -13.8% Financial income / Margin trading balance 1.3% 1.3% 1.4% 1.5% 1.3% 1.2% Monex, Inc. 3,246 2,565 3,032 2,175 2,873 2,379 YoY 12.4% 7.2% 1.7% -13.7% -11.5% -7.3% Financial income / Margin trading balance 1.6% 1.4% 1.8% 1.4% 1.9% 1.6% Mat sui Securit ies 3,064 2,897 2,807 2,344 2,266 2,385 YoY 11.7% 0.1% -12.2% -26.9% -26.0% -17.7% Financial income / Margin trading balance 0.9% 1.0% 1.1% 1.0% 1.0% 1.1% kabu.com Securities 3,141 2,706 2,979 2,215 2,653 2,321 YoY 8.4% -0.5% -13.3% -25.4% -15.5% -14.2% Financial income / Margin trading balance 1.0% 1.0% 1.1% 0.8% 1.0% 0.9% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

18/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Quarterly earnings trends for top five online brokerages

Q2 FY03/20 kabu.come SBI Securities Rakuten Securities Monex, Inc. Matsui Securities Quarterly (JPYmn) Securities Operating revenue 30,400 14,138 6,391 5,713 4,664 Net operating revenue 26,940 13,517 5,753 5,231 3,760 Commissions received 13,251 4,949 2,761 3,010 1,779 % of net operating revenue 49.2% 36.6% 48.0% 57.5% 47.3% Brokerage 6,777 3,453 2,171 2,838 1,441 % of net operating revenue 25.2% 25.5% 37.7% 54.3% 38.3% Underwriting and distribution 682 14 24 5 - % of net operating revenue 2.5% 0.1% 0.4% 0.1% 0.0% Subscription and distribution 421 388 60 9 28 % of net operating revenue 1.6% 2.9% 1.0% 0.2% 0.7% Other commissions 5,371 1,094 506 159 311 % of net operating revenue 19.9% 8.1% 8.8% 3.0% 8.3% Net trading income 8,072 4,050 1,225 318 316 % of net operating revenue 30.0% 30.0% 21.3% 6.1% 8.4% Net financial income 7,195 4,233 1,742 1,903 1,584 % of net operating revenue 26.7% 31.3% 30.3% 36.4% 42.1% SG&A expenses 18,136 10,510 5,340 3,158 3,245 % of net operating revenue 67.3% 77.8% 92.8% 60.4% 86.3% Operating profit 8,803 3,007 413 2,072 514 % of net operating revenue 32.7% 22.2% 7.2% 39.6% 13.7% Source: Shared Research, based on company data Notes: Figures for SBI Securities and Rakuten Securities represent consolidated results. Because Rakuten Securities uses fiscal year ending in December, the figures shown for Rakuten Securities represent Q3 results.

19/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Cumulative Q3 FY03/20 results

Operating revenue: JPY38.6bn (-3.8% YoY) ▷ Net operating revenue: JPY34.4bn (-5.4% YoY) ▷ Operating profit equivalent: JPY3.1bn (+1.7% YoY) ▷ Pre-tax profit: JPY3.1bn (-4.9% YoY) ▷ Profit attributable to owners of the parent: JPY2.3bn (-16.5% YoY) ▷

Operating revenue of JPY38.6bn (-3.8% YoY) included commission income of JPY17.6bn (-12.2% YoY), with the decline in commission income stemming mainly from falling brokerage commissions at the Japan segment. Trading income of JPY5.9bn was up 17.2% YoY, reflecting increases in trading income at the Japan segment and the Crypto Asset segment. Financial income of JPY14.6bn was up 0.2% YoY, underpinned by increases in interest income at the US segment.

On the expense front, SG&A expenses of JPY31.4bn were down 6.0% YoY, reflecting lower systems-related expenses at the Japan segment.

On the earnings front, operating profit equivalent was up despite the drop in operating revenue, as the drop in profit at the Japan segment was offset by rising profits at the US segment. Profits at the Crypto Asset segment, which turned profitable in Q1 FY03/20 and remained profitable through Q3, also contributed.

Corporate income tax expense of JPY950mn in 1H FY03/20 compares with JPY1632mn in the same period last year, when the company’s tax bill was reduced by JPY387mn as a result of past losses. Due to this rise in corporate income taxes, profit attributable to owners of the parent fell by a higher percentage than pre-tax profit.

Japan segment For cumulative Q3 FY03/20, the Japan segment reported operating revenue of JPY19.1bn (-11.6% YoY). Commission income of JPY8.8bn was down 16.1% YoY, and trading income of JPY3.5bn was up 4.4% YoY. Financial income of JPY6.7bn finished down 12.7% YoY while financial expenses rose to JPY1.6bn (+4.0% YoY), leaving net financial income at JPY5.1bn (-16.8% YoY).

Net operating revenue (operating revenue after deducting financial expenses and cost of revenue) of JPY17.5bn was down 12.8% YoY. The operating profit equivalent of JPY1.7bn was down 39.1% YoY, and pre-tax segment profit of JPY1.8bn was down 39.1% YoY.

Commission income In the Japan segment, commission income of JPY8.8bn was down 16.1% YoY, with the drop coming primarily from a fall in commissions from stock and ETF trading, which declined 17.1% YoY to JPY6.8bn. Equity trading by retail investors in the market as a whole was down.

The average daily equity trading by retail investors on the Tokyo and Nagoya stock exchanges fell 15.7% YoY to JPY962.7bn. Monex Inc.’s market share of trading by retail investors was flat YoY at 5.2% as its average daily stock trading value fell 16.1% YoY to JPY49.9bn. Its average commission rate on stock trades increased 0.001pp YoY to 0.076%.

Trading income Net trading income of JPY3.5bn was up 4.4% YoY. Forex trading value of JPY43.4tn was up 72.6% YoY. The sharp rise was attributed to the company’s move to tighten its bid-ask spread on all currency pairs, with the spread for the USD/JPY pair narrowing to JPY0.003 (fixed in principle, but conditions apply).

20/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Financial income Financial income of JPY6.7bn was down 12.7% YoY, reflecting a decline in the average balance of margin trading accounts and an accompanying decline in income from margin trading.

The balance of margin trading accounts at end-Q3 FY03/20 was JPY160.8bn (+1.9% YoY); the average month-end balance of margin trading accounts declined 16.9% YoY to JPY155.1bn (Shared Research estimate based on company data).

SG&A expenses SG&A expenses of JPY15.8bn were down 8.7% YoY. Advertising and promotional spending of JPY757mn was down 17.5% YoY. System-related expenses (including real estate-related expenses, office and supplies, and depreciation), which account for a large proportion of SG&A expenses, declined 15.4% YoY to JPY7.9bn.

Customer trends As of the end of December 2019, Monex, Inc. had a total of 1,842,499 customer accounts (+1.9% YoY) and total customer assets under custody of JPY4.3tn (+12.8.% YoY).

US segment For cumulative Q3 FY03/20, the US segment reported operating revenue of JPY17.4bn (+1.7% YoY), with commission income coming in at JPY8.4bn (-8.1% YoY), financial income coming in at JPY7.9bn (+17.8% YoY), and net financial income coming in at JPY5.2bn (+25.1% YoY). Net operating revenue of JPY14.4bn was up 0.6% YoY, operating profit equivalent of JPY1.5bn was up 13.1% YoY, and pre-tax segment profit of JPY1.4bn was up 20.5% YoY.

The core business of the US segment is TradeStation Securities, Inc., which is a subsidiary of TradeStation Group, Inc. The main customers of the US segment are active traders, who tend to contribute to earnings under high market volatility resulting in a trading volume hike. The company also captures financial income by managing customer deposits, and an increase in interest rates tends to contribute to earnings.

Commission income declined 8.1% YoY to JPY8.4bn, due to decreases in brokerage commissions and other commissions. The increase in financial income reflected the rise in customer assets in custody and the accompanying increase in interest income. The average yen/dollar exchange rate during cumulative Q3 FY03/20 represented a 1.8% appreciation of the yen versus the dollar compared with cumulative Q3 FY03/19.

On the earnings front, the YoY rise at the operating profit level and below reflected the rise in net operating revenue (+0.6% YoY) and the decrease in SG&A expenses (-0.7% YoY).

On a USD basis, operating revenue rose 3.6% YoY to USD159.4mn. Commission income of USD77.5mn was down 6.4% YoY and financial income of USD72.3mn was up 20.0% YoY. Net operating revenue of USD132.7mn was up 2.5% YoY, operating profit equivalent of USD13.9mn was up 15.2% YoY, and pre-tax segment profit of USD13.6mn was up 22.7% YoY.

Commission income Commission income of USD77.5mn was down 6.4% YoY; in yen terms, commission income of JPY8.4bn was down 8.1% YoY. Brokerage commissions of USD56.6mn were down 4.6% YoY, in yen terms, brokerage commissions of JPY6.2bn were down 6.4% YoY. As of the end of December 2019, the group’s US segment reported a total of 96,643 active accounts (+11.5 % YoY). The VIX volatility index averaged 15.0 (-8.4% YoY). The average number of commissionable contracts or securities trades at the US segment on trading days (i.e., DARTs) rose 4.1% YoY to 82,333 (Shared Research estimate based on company data). Other fees and commission income totaled USD20.9mn (-11.0% YoY) or, in yen terms, JPY2.3bn (-12.7% YoY).

Financial income Financial income of USD72.3mn was up 20.0% YoY; in yen terms, financial income of JPY7.9bn was up 17.8% YoY. Contributing factors include higher interest income due to a rise in short-term rates. Customer assets under custody at the end of December

21/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

2019 increased 17.0% YoY to USD6.0bn, along with the rise in the number of active account. Financial expenses totaled USD24.3mn (+7.6% YoY) or JPY2.6bn (+5.6% YoY). Net financial income came to USD48.0mn (+27.4% YoY) or JPY5.2bn (+25.1% YoY).

SG&A expenses SG&A expenses totaled USD118.8mn (+1.2% YoY) or JPY12.9bn (-0.7% YoY).

Customer trends As of the end of December 2019, the number of active accounts at TradeStation Securities was 96,643 (+11.5% YoY) and customer assets under custody totaled USD6.0bn (+17.0% YoY).

Asia-Pacific segment For cumulative Q3 FY03/20, the Asia-Pacific segment reported operating revenue of JPY601mn (-1.6% YoY), with commission income coming in at JPY276mn (-8.3% YoY) and financial income coming in at JPY213mn (+0.9% YoY). Net operating revenue of JPY357mn was down 40.4% YoY; the operating loss equivalent of JPY288mn compares with a year-earlier loss of JPY55mn, and the pre-tax segment loss of JPY271mn compares with a year-earlier loss of JPY44mn.

The core businesses of the Asia-Pacific segment are Monex Boom Securities (H.K.) Limited and Monex Securities Australia Pty Ltd.

Operating revenue Commission income was down, hurt by the decline in stock trading value at Monex Boom Securities.

Financial income Financial income was JPY213mn (+0.9% YoY), and financial expenses was JPY244mn (versus JPY12mn in cumulative Q3 FY03/19). In this segment the company recorded JPY223mn in financial expenses associated with the credit risk reduction for other financial assets (i.e., loans outstanding). This left the segment with net financial loss of JPY33mn (versus net financial income of JPY199mn during the same period last year).

SG&A expenses SG&A expenses fell 1.4% YoY to JPY645mn thanks to the cost savings at Monex Securities Australia.

Other Equity in earnings of affiliates increased 66.4% YoY to JPY31mn, reflecting a profit booked from a joint venture in mainland China.

Crypto Asset segment For cumulative Q3 FY03/20, the Crypto Asset segment reported operating revenue of JPY2.5bn (+41.6% YoY), with commission income coming in at JPY200mn (+20.5% YoY) and trading income coming in at JPY2.4bn (+43.9% YoY). The segment reported a pre-tax profit of JPY24mn versus a year-earlier loss of JPY1.2bn.

The core business of the Crypto Asset segment is Coincheck, which was included in consolidated results starting in April 2018. After a long stretch when it was forbidden to open any new user accounts and was restricted to only offering a few services, Coincheck was given the go-ahead by regulatory authorities to begin accepting new accounts and resume trading in some cryptocurrencies in October 2018, was subsequently given permission to handle transactions in all cryptocurrencies at the end of November 2018, and finally completed its registration as a cryptocurrency exchange operator in January 2019. In June 2019, Coincheck began handling Monacoin, bringing the number of different cryptocurrencies handled to ten.

Commissions included withdrawal and remittance fees and commissions from the cryptocurrency exchange. Trading income included income from buying and selling on the cryptocurrency exchange. Trading income grew along with the increase in cryptocurrency trading.

22/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

As of the end of December 2019, customer assets under custody totaled JPY66.9bn. While this was down 6.5% versus the end of Q3 FY03/19, it represents a 0.5% increase over the end of FY03/19.

SG&A expenses of JPY2.5bn were down 25.9% YoY, with cost savings from reductions in real estate expenses resulting from office mergers offsetting increases in advertising and promotional spending that went along with the addition of new accounts. As a result, the Crypto Asset segment reported a pre-tax profit (segment profit) of JPY24mn, marking its third profitable quarter since becoming a part of the group (after first moving into the black in Q1 FY03/20).

Investment segment For cumulative Q3 FY03/20, the Investment segment reported operating revenue of JPY120mn (-63.1% YoY), with financial income coming in at JPY120mn (-63.1% YoY). The pre-tax segment profit of JPY79mn was down 74.4% versus the same period last year.

The Investment segment is comprised of Monex Ventures, Inc. and MV1 Investment Limited Partnership.

Results for Q3 FY03/20 (October–December 2019)

Operating revenue: JPY12.5bn (-8.6% YoY) ▷ Net operating revenue: JPY11.2bn (-11.2% YoY) ▷ Operating profit equivalent: JPY884mn (-34.4% YoY) ▷ Pre-tax profit: JPY869mn (-37.6% YoY) ▷ Profit attributable to owners of the parent: JPY573mn (-39.7% YoY) ▷

Operating revenue of JPY12.5bn was down 8.6% YoY, with commission income of JPY6.1bn down 11.7% YoY, the decline due in large part to falling commissions at the Japan segment. Trading income of JPY1.6bn was down 10.1% YoY, reflecting decreases in trading income at the Japan segment and the Crypto Asset segment. Financial income of JPY4.6bn was down 4.0% YoY due to lower financial income at the Japan segment that offset increases in interest income at the US segment.

On the expense front, SG&A expenses of JPY10.3bn were down 8.4% YoY, reflecting lower systems-related expenses at the Japan segment.

On the earnings front, operating profit equivalent, pre-tax profit, and profit attributable to owners of the parent dropped YoY, reflecting declining profits at all segments except for the Crypto Asset segment.

Japan segment For Q3 FY03/20 (October-December 2019), the Japan segment reported operating revenue of JPY6.8bn (-9.0% YoY). Commission income of JPY3.3bn was down 8.4% YoY and trading income of JPY1.2bn was down 7.0% YoY. Financial income of JPY2.2bn was down 11.0% YoY; with financial expenses coming in at JPY511mn (+3.7% YoY) and net financial income coming in at JPY1.8bn (-14.6% YoY).

Net operating revenue of JPY6.3bn was down 9.9% YoY. The operating profit equivalent of JPY927mn was down 24.0% YoY, and pre-tax segment profit of JPY901mn was down 20.7% YoY.

Commission income At the Japan segment, Q3 commissions income of JPY3.3bn was down 8.4% YoY, with the drop coming primarily from a fall in commissions from stock and ETF trading, which fell 5.6% YoY to JPY2.7bn. Although Monex Inc. managed to increase its market share, equity trading by retail investors in the market as a whole was down. Average commission rate increased YoY.

23/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

The average daily equity trading by retail investors on the Tokyo and Nagoya stock exchanges fell 13.7% YoY to JPY1.0tn. Monex Inc.’s market share of trading by retail investors rose 0.2pp to 5.4% but its average daily stock trading value fell 11.0% YoY to JPY54.6bn and its average commission rate on stock trading declined 0.005pp YoY to 0.080%.

Trading income Net trading income of JPY1.2bn was down 7.0% YoY. Forex trading value of JPY14.1tn was up 30.6% YoY, with the rise attributed to the company’s move to tighten its bid-ask spread on all currency pairs and the narrowing of the spread for the USD/JPY pair to JPY0.003 (fixed in principle, but conditions apply) in November 2018.

Financial income Financial income of JPY2.3bn was down 11.0% YoY, reflecting a decline in the average balance of margin trading accounts and an accompanying decline in income from margin trading.

The balance of margin trading accounts at the end of Q3 FY03/20 was JPY160.8bn (+1.9% YoY); the average month-end balance of margin trading accounts declined 10.0% YoY to JPY157.9bn (Shared Research estimate based on company data).

SG&A expenses SG&A expenses of JPY5.4bn were down 6.9% YoY. System-related expenses (including real estate-related expenses, office and supplies, and depreciation), which account for a large proportion of SG&A expenses, declined 14.7% YoY to JPY2.6bn.

US segment For Q3 FY03/20 (October–December 2019), the US segment reported operating revenue of JPY5.4bn (-10.4% YoY), with commission income coming in at JPY2.7bn (-16.4% YoY), financial income coming in at JPY2.5bn (+6.3% YoY), and net financial income coming in at JPY1.6bn (+2.1% YoY). Net operating revenue of JPY4.5bn was down 11.7% YoY, operating profit equivalent of JPY287mn was down 60.6% YoY, and pre-tax segment profit of JPY286mn was down 56.5% YoY.

USD-based results On a USD basis, operating revenue fell 7.8% YoY to USD50.0mn. Commission income of USD24.8mn was down 13.9% YoY and financial income of USD22.7mn was up 9.5% YoY. Net operating revenue of USD41.5mn was down 9.2% YoY, operating profit equivalent of USD2.6mn was up 59.6% YoY, and pre-tax segment profit of USD2.6mn was up 55.5% YoY.

Commission income Commission income totaled USD24.8mn (-13.9% YoY) or JPY2.7bn (-16.9% YoY). Brokerage commissions of USD17.4mn were down 17.7% YoY; in yen terms, the comparable figure of JPY1.9bn was up 20.1% YoY. The VIX volatility index averaged 14.0 (- 35.5% YoY). The average number of commissionable contracts or securities trades at the US segment on trading days (i.e., DARTs) fell 11.2% YoY to 80,052 (Shared Research estimate based on company data). Other fees and commission income totaled USD7.4mn (-3.5% YoY) or JPY809mn (-6.4% YoY).

Financial income Financial income of USD22.7mn was up 9.5% YoY; in yen terms, financial income of JPY2.5bn was up 6.3% YoY. Contributing factors include higher interest income stemming from a rise in customer assets under custody. Financial expenses totaled USD8.1mn (+18.4% YoY) or JPY877mn (-14.8% YoY). Net financial income came to USD14.6mn (+5.1% YoY) or JPY1.6bn (+2.1% YoY).

SG&A expenses SG&A expenses totaled USD38.9mn (-0.8% YoY) or JPY4.2bn (-3.7% YoY).

For details on previous quarterly and annual results, please refer to the Historical financial statements section.

24/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Full-year company forecast for FY03/20

According to the company, it does not disclose earnings forecasts due to the difficulty estimating earnings of the mainstay brokerage business, which is strongly affected by stock market fluctuations. However, the company does release monthly trends in management indicators of main subsidiaries Monex, Inc., and TradeStation Group.

Shared Research understands that it is difficult to forecast earnings for Monex Group, but we estimate earnings for this fiscal year and explain important variables in the following section. For specific figures, please see the Quarterly trends and results section. The Earnings structure section later in the report explains the base of earnings trends in more detail.

Most of the company’s earnings come from the Japan and US segments. FY03/19 earnings were also affected by the consolidation of Coincheck into the Crypto Asset segment, as the segment posted a loss of JPY1.7bn.

Japan segment The main factors that affect earnings of the Japan segment are the value of equity trading by retail investors on the Tokyo, and Nagoya stock exchanges, the company’s share of this market, and margin trading balances.

Net operating revenue of the Japan segment consists mainly of brokerage commissions, trading income, and net financial income. Brokerage commissions are commissions on stock trading (cash and margin accounts) and on futures and options trading. Trading income is revenue from forex trading. Net financial income is the difference between revenue from margin trading + stock lending income and financial expenses associated with margin trading and securities lending.

Brokerage commissions

Brokerage commissions = equity trading value x brokerage commission rate

Equity trading value affected by stock market movements Monex’s equity trading value is mostly affected by equity trading value of retail investors at the Tokyo and Nagoya stock exchanges, and the company’s share.

The correlation coefficient of TOPIX and monthly trading value of retail investors at the Tokyo and Nagoya stock exchanges in the 10 years from April 2009 to March 2019 is 0.86, showing a strong correlation between the stock index and equity trading value of retail investors.

Monex’s share of equity trading value of retail investors had been shrinking. It dropped from 7.3% in FY03/12 to 5.0% in FY03/17, but finished at 5.2% in FY03/19 as the company began to recover market share following the introduction of the Japanese equities version of its TradeStation trading platform in March 2016, with additional help from cuts in commissions for margin trades in November 2017 and other measures.

Brokerage commission rate may vary depending on usage of TradeStation The company does not engage in commission price wars. Its commission rate has been stable at around 0.09%. The commission rate is calculated as brokerage commission (includes commission for futures and options trading) divided by equity trading value (includes ETFs and REITs, but excludes futures and options). The commission rate is used as an indicator of overall trends.

The Japanese equities trading tool TradeStation, which was launched in March 2016 targeting active traders, sets a commission rate of around 0.04%.

Lower fees on margin trades pushing down brokerage commission rate Monex, Inc. reduced commissions for margin trades in November 2017, introducing the following fee structure. For trades with a principal value of less than or equal to JPY100,000, the commission was lowered from JPY100 to JPY95; for trades with larger than JPY100,000 but less than or equal to JPY500,000, the commission was lowered from JPY450 to JPY190; for trades larger than

25/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

JPY500,000 but less than or equal to JPY1,000,000, the commission was lowered from JPY1,500 to JPY355; and for trades larger than JPY1,000,000 but less than or equal to JPY2,000,000, the commission was lowered from JPY3,000 to JPY800. Under this new fee structure , Shared Research estimates that the brokerage commission rate on margin trades came down to 0.05% versus 0.12% previously.

In FY03/19, Monex’s margin trading value exceeded 50% of its equity trading value. Due to lowering its fees for margin trades (described above), the company’s average brokerage commission rate on stock trades fell from 0.092% in FY03/17 to 0.074% in FY03/19. If the proportion of margin trades continues to rise, the average brokerage commission rate could decline even further depending on the mix of trading under the current fee structure.

Net financial income Margin trading balance affected by stock market trends The margin trading balance, like equity trading value, is strongly affected by stock market movements. The correlation coefficient of TOPIX with the company’s monthly outstanding balances of margin trading (outstanding purchases – outstanding sales) over the 10 years from April 2009 to March 2019 is 0.90, showing a strong correlation between the stock index and the balance of margin trading value. Monex, Inc.’s share of the total outstanding balance of margin trading at the Tokyo and Nagoya stock exchanges is around 5.0%. Monex’s margin trading balance per account was below the level of its competitors in FY03/19, but Shared Research thinks the margin trading balance per account may increase as a result of cutting fees for margin trades and rolling out unlimited short selling in negotiable margin trading starting in March 2019 (for details see discussion under Competitions).

SG&A expenses Variable expenses are transaction-related expenses linked to equity trading value. Variable expenses comprise around 15% of revenue (variable expenses / net operating revenue). Fixed expenses are personnel and system-related expenses (including all related rent, operating expenses, and depreciation). System-related expenses declined by JPY1.6bn or 11.6% YoY in FY03/18 following the completion of the transition to a new backbone system, but increased by JPY184mn or 1.5% YoY in FY03/19 after the benefits from the transition to a new backbone system ran its course.

Monex Group expects depreciation and amortization expenses to decrease by JPY1.6bn in FY03/20. In FY03/19, the company booked an impairment loss of JPY1.8bn on fixed assets linked to its Japanese equity trading tool TradeStation after a reassessment of their fair market value. The booking of impairment losses on these and depreciation of other assets on schedule would lower depreciation expenses in FY03/20.

US segment Operating revenue of the US segment consists mainly of brokerage commissions on equity, futures and options trading, and net financial income.

Brokerage commissions The US segment’s brokerage commissions are affected by Daily Average Revenue Trades (DARTs). DARTs are highly correlated with the VIX index, which is an indicator of the market’s outlook on volatility over the next 30 days. TradeStation Securities’ DARTs tend to move in tandem with the VIX index.

TradeStation Securities launches TSgo in response to move by industry peers to commission-free trading In October 2019, Charles Schwab, the largest online broker in the US, announced that it would be moving to commission-free trading for trades placed via all of its mobile and online platforms for stocks, ETFs, and options trading on US and Canadian exchanges.

TD Ameritrade and E*Trade quickly followed suit with their own commission-free trading packages, as did TradeStation Securities, rolling out its new TSgo service offering commission-free trades for stocks, options, and ETFs placed via one of its online or mobile platforms. Prior to the start of its TSgo service, TradeStation Securities had been charging a flat-rate of $5.00 per

26/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

trade for stocks and ETFs, and $5.00 plus $0.50 per contract for option trades. Under the TSgo pricing plan, the $5.00 base commission per trade for options will go to zero but it $0.50 per contract charge will stay.

Before customers can take advantage of the commission-free trading at TradeStation Securities, they must specifically register for a TSgo account. TradeStation is known for its downloadable online trading platform that is designed with the frequent trader in mind. Once a TradeStation customer registers for a TSgo account they will no longer be able to download the regular TradeStation trade platform that is available to regular account holders.

With respect to the impact on revenues and earnings, we note that in FY03/19 the US segment reported a total of JPY8.6bn in commission income, with JPY2.0bn of this from stock/ETF trading and JPY6.5bn from futures/options trading. The company estimates that the introduction of its new TSgo service will reduce commission income by roughly JPY100mn to JPY200mn in FY03/20. Explaining its calculation, the company said many of its customers are currently using its downloadable TradeStation platform and it takes the extra step of signing up for a TSgo account before they can take advantage of the commission-free trades.

Net financial income Net financial income mainly comprises interest income earned from investing customer assets in custody (cash) and fluctuates according to the balance of these assets and US short-term interest rates. As customer assets are increasing along with the number of active accounts and the US short-term interest rates are on an increasing trajectory, interest income earned from investing customer assets is also on the rise. With customer assets in custody (cash) of some USD2.0bn, US operations generated roughly USD45mn in interest income in this manner in FY03/19 (compared with over USD30mn in FY03/18).

Assets under custody in the US segment Returns on investment of customer assets in custody and US short-term interest rates

Source: Company data Source: Company data Note: Net financial income excludes income from margin trades and stock lending/borrowing FY03/20 financial income set to benefit from FF rate hikes and termination of interest rate swaps

The US Federal Reserve began hiking its benchmark federal funds rate in early 2018, raising it from 1.50% in January, to 1.75% in March, 2.00% in June, 2.25% in September, and then to 2.50% in December. The Fed has since reversed course, lowering its benchmark rate to 2.25% in July 2019 followed by a cut to 2.00% in September and another cut to 1.75% in November 2019.

The company previously used floating-for-fixed interest rate swaps but ended this in November 2018. As a result, it has received floating interest rates on invested assets since December 2018, lifting financial income by USD1.0mn per month compared with prior levels.

At the US segment, the company is expecting interest income from funds invested of USD51-53mn in FY03/20 versus USD45mn in FY03/19. The expected gains reflect a combination of higher short-term interest rates and a full-year contribution from the above-mentioned termination of floating-for-fixed interest rate swaps, with its current outlook assuming that the Fed will lower its benchmark interest rate several times during the period.

27/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Other: Preparations underway for cryptocurrency business Preparations are underway at TradeStation Crypto, a subsidiary of TradeStation Group, to begin offering cryptocurrency trading services by end-2019. Shared Research believes the company would benefit from this move, particularly through an increase in user accounts at TradeStation and a boost to trading income from cryptocurrency sales.

SG&A expenses Variable expenses of the TradeStation Group are transaction-related expenses linked to equity trading value. Variable expenses are more than 30% of revenue (variable expenses / net operating revenue). Fixed expenses are personnel and system-related expenses (including all related rent, operating expenses, and depreciation).

Crypto Asset segment Coincheck (consolidated in April 2018) forms the core of this segment. Operating revenue comes mainly from trading income (i.e., withdrawals and sales of cryptocurrency). Crypto Asset posted an operating loss in FY03/19, due largely to sluggish prices in the cryptocurrency market and higher SG&A expenses (outlays to strengthen its internal control system). However, Coincheck has booked sizable profits before being consolidated by Monex Group, and Shared Research believes that it is likely to improve earnings should prices in the cryptocurrency market recover. Coincheck is apparently considering to implement cost cuts and other profit improvement measures in FY03/20.

Crypto Asset posted FY03/19 operating revenue of JPY2.1bn. With SG&A expense of JPY4.8bn, it recorded an operating loss equivalent of JPY2.7bn. Operating revenue mostly came from trading income through the withdrawals and sales of cryptocurrency by existing accountholders. However, the amount of withdrawals and sales of cryptocurrency declined YoY, due largely to sluggish prices in the cryptocurrency market and a drop in the balance of customer cryptocurrency. SG&A expenses increased YoY on outlays to strengthen its internal control system.

In FY03/18, Coincheck reported sales (revenue from sales of cryptocurrency minus cost of sales) of JPY62.6bn; operating profit of JPY53.7bn; an extraordinary loss of JPY47.3bn (mostly comprising compensations paid to customers for fraudulent remittances); and pre-tax profit of JPY6.3bn. Shared Research understands the majority of FY3/18 sales came from the spread between purchasing and selling prices on the cryptocurrency exchange. Coincheck temporarily suspended operations following fraudulent remittances, but resumed withdrawals and sales of cryptocurrency between February–March 2018. Earnings during these two months were in the black, with sales of JPY2.0bn and SG&A expenses of JPY1.5bn, leaving operating profit of JPY500mn.

28/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Medium-term outlook Earnings weak during period of medium-term management strategy Initiatives under the previous medium-term strategy “Global Vision” (FY03/12–FY03/17) FY03/17 was the final year of the company’s medium-term management strategy, dubbed “Global Vision.” Prior to the medium- term strategy, the company acquired Hong Kong-based Boom Group (now Monex Boom Securities) in December 2010 and US company TradeStation Group, Inc. in June 2011, and made them both subsidiaries. Global Vision was a strategy to strengthen and grow the US and Hong Kong businesses as well as Monex, Inc. in Japan, and harness the distinctive technological development capabilities of TradeStation (highly rated in the US) throughout the Monex Group to generate synergies from the acquisitions.

The company implemented the following strategies:

Revamped US equities trading service: In November 2012, Monex, Inc. introduced the trading system developed by ▷ TradeStation Securities, Inc. and TradeStation Technologies, Inc., and fully revamped its US equities trading service. As a result, it offered the largest number of US stocks among Japanese online brokerages at the lowest commission rates and for the longest trading hours. Launched Japanese equities version of TradeStation: In March 2016, Monex, Inc. launched the Japanese equities trading ▷ platform TradeStation, targeting active traders. It was developed by Monex, Inc., TradeStation Securities, and TradeStation

Technologies with the goal of attracting more active traders in Japan. Shifted to a new backbone brokerage system: In January 2017, Monex, Inc. completed the transition to its new backbone ▷ brokerage system. The company previously outsourced its IT system to a system integration company, but has developed its own

system in-house to reduce system-related costs and quickly develop and commercialize service to meet customer needs and stay competitive. Provided trading platforms to other companies: In February 2014, TradeStation Technologies began providing a trading ▷ platform to customers of South Korea’s leading financial group Shinhan Investment Corp. TradeStation Technologies also began providing a trading platform to customers of Guosen Securities Company Limited, which ranks eighth in China in terms of customer assets in custody.

Results of the previous medium-term strategy Initiatives under the Global Vision strategy enhanced Monex Group’s product range (mainly at Monex, Inc.) and completed the process of bringing system development in-house. However, as this meant the company had to run two backbone brokerage systems simultaneously, this also resulted in higher costs.

Monex Group is one of the top five online brokerages. Between FY03/12 and FY03/17, the other four recorded a net operating revenue growth CAGR of 15% (8% for Monex Group) and operating profit CAGR of 27% (decline of 15% for Monex Group).

Looking at revenues, Monex Group’s commissions, trading income, and net financial income grew more slowly than average rates for its four peers.

29/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Consolidated results performance under previous medium-term strategy (JPYmn) FY03/12 FY03/17 Change CA GR Net operating revenue 28,888 41,852 12,964 7.7% Commissions received 17,030 26,349 9,319 9.1% Net t rading income 6,200 4,498 -1,702 -6.2% Net financial income 5,130 10,334 5,204 15.0% SG&A expenses 26,060 40,578 14,518 9.3% T rading-relat ed 8,787 11,281 2,494 5.1% Personnel 6,163 10,393 4,230 11.0% System-related 9,072 15,686 6,614 11.6% Operat ing profit equivalent 2,827 1,274 -1,553 -14.7% Source: Shared Research based on company data

Earnings total of top four online brokerages (excluding Monex, Inc.) (JPYmn) FY03/12 FY03/17 Change CA GR Net operating revenue 81,751 164,231 82,481 15.0% Commissions received 52,337 87,698 35,362 10.9% Net t rading income 7,513 18,731 11,218 20.0% Net financial income 21,372 56,687 35,315 21.5% SG&A expenses 60,029 92,184 32,155 9.0% Operating profit 21,722 72,046 50,324 27.1% Source: Shared Research based on each of the top four online brokerages’ data

Japan segment performance under previous medium-term strategy (JPYmn) FY03/12 FY03/17 Change CA GR Net operating revenue 20,582 26,693 6,111 5.3% SG&A expenses 16,742 25,051 8,309 8.4% T rading-relat ed 4,747 5,323 576 2.3% Personnel 3,165 4,206 1,041 5.9% System-related 7,640 13,895 6,255 12.7% Operat ing profit equivalent 3,840 1,643 -2,197 -15.6% Source: Shared Research based on company data

US segment performance under previous medium-term strategy (JPYmn) FY03/12 FY03/17 Change CA GR Net operating revenue 7,950 15,616 7,666 14.5% SG&A expenses 8,884 15,858 6,974 12.3% T rading-relat ed 3,930 5,869 1,939 8.4% Personnel 2,791 5,912 3,121 16.2% System-related 1,336 2,388 1,052 12.3% Operat ing profit equivalent -934 -242 692 - Source: Shared Research based on company data

Between FY03/12 and FY03/17, while other online brokerages saw earnings grow, Monex Group saw positive top-line growth but lower earnings as a result of the higher costs stemming from running two backbone brokerage system simultaneously. The company’s SG&A expenses grew more than net operating revenue. Personnel costs and system-related expenses (real estate- related and administrative expenses plus depreciation) grew significantly. SG&A expenses went up in Japan and the US (mainly system-related expenses in Japan and personnel expenses in the US).

New medium-term strategy from FY03/18

FY03/17 marked the end of the previous medium-term management strategy, which focused on globalization and development of an in-house system. The new strategy, dubbed “Global Vision II: Bloom” started in FY03/18. It aims to cut costs that ballooned over the previous five years and utilize the assets acquired under the previous strategy. Monex also plans to create new businesses using its management resources. The company says that it plans to build a business structure with a stable consolidated OPM of 30% over the long term.

OPM Operating profit equivalent/ net operating revenue ＝ Operating profit equivalent Operating revenue – (financial expenses + cost of revenue + SG&A expenses) ＝ Net operating revenue = Operating revenue – (financial expenses + cost of revenue)

Shared Research believes attracting active traders in the Japan segment, increasing the number of accounts in the US segment, and reducing costs overall are key long-term growth drivers.

30/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

In October 2017, as part of what the company’s calls its “New Beginning” initiative, the company announced that it was ◤ moving into the cryptocurrency exchange business and would be developing its own blockchain technology in order to offer new service s to retail investors, traders, and startup companies. In line with this plan, the company subsequently acquired cryptocurrency exchange operator Coincheck, Inc. in April 2018, making it a wholly owned subsidiary.

Japan segment The company introduced a US equities trading system, and promoted development of a Japanese equities trading tool TradeStation and a new backbone brokerage system during FY03/12–FY03/17.

From FY03/18, Shared Research expects earnings growth as TradeStation attracts more active traders and grows margin trades. The customers of Monex, Inc., the group’s core subsidiary in Japan, are mainly investors seeking asset building over the long term, and relatively few are active traders. By drawing active traders away from rivals, the company believes it can increase its stock brokerage commission revenue. At Monex, Inc., margin accounts make up a smaller portion of total customer accounts and margin trading balance per account is lower than at the other online brokers. The company thinks attracting active traders and enhancing margin trading services (lower commissions, allowing users to short sell in negotiable margin trades) will raise its margin trading balance, leading to higher financial income.

Monex, Inc. has a relatively small share of active traders because it has been reluctant to engage in commission price wars, and was relatively late in launching margin trading services compared with rivals, as it took a cautious stance on providing margin trading to retail investors. Its strategy in the medium term is to entice active traders away from its competitors by offering advanced trading tools with competitive commissions; in line with this, in November 2017 it lowered commissions on margin trades.

Using Japanese equities trading tool TradeStation to attract active traders In March 2016, Monex, Inc. began offering TradeStation, a Japanese equities trading tool for active traders.

TradeStation surpasses other trading tools Japanese equities trading tool TradeStation was developed by Monex, Inc., and Monex Group’s US subsidiaries TradeStation Securities and TradeStation Technologies. The original US version of TradeStation is highly rated by active traders and has won numerous awards, as well as achieving a 4.5-star rating eight years running for the Best for Frequent Traders category in Barron’s review of online brokerages.

The company explains that TradeStation offers one of the fastest order placement speeds among online brokers (with average 6.6 milliseconds versus kabu.com Securities’ median value of 33 milliseconds) as well as sophisticated features required by active traders such as real-time monitoring of registered stocks (real-time sorting by percentage change of up to 2,000 stocks), screening (access to over 200 indices), and backtesting (verifying trade strategy using historical data before live trading) features. TradeStation also uses a proprietary programming language EasyLanguage, which allows active traders to customize indicators, trading signals, and program trades.

TradeStation commissions are the lowest in the industry TradeStation’s fee structure (based on daily trading value) is JPY50 per JPY100,000 (Mini Plan), JPY400 per JPY1mn (Normal Plan), and JPY3,250 per JPY10mn (Large Plan, available to margin account holders only). Commission rates range from 0.03% to 0.05%, which is the lowest in the industry for active trading.

Aims to gain market share by attracting active traders, a new customer base According to Japan Securities Dealers Association’s (JSDA) Online Securities Trading Activity (Monthly) statistics, active traders, who engage in 100 or more trades per month, have accounted for roughly 60% of equity trading value since March 2013. As such, a select group of customers who trade frequently account for most of the equity trading value of online brokerages.

31/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Monthly equity trading value of customers who trade 100 or more times per month

(JPYbn) Sep. 2013 Mar. 2014 Sep. 2014 Mar. 2015 Sep. 2015 Mar. 2016 Sep. 2016 Mar. 2017 Sep. 2017 Mar. 2018 Sep. 2018 Trading value by customers with 100 trades or less 7,763 6,775 7,685 9,031 6,685 6,645 4,307 7,949 7,947 8,204 7,609 % of total 37.4% 36.7% 37.1% 34.9% 34.2% 32.1% 30.9% 40.8% 41.5% 36.1% 43.9% Trading value by customers with more than 100 trades 13,013 11,669 13,021 16,836 12,882 14,085 9,639 11,556 11,181 14,506 9,722 % of total 62.6% 63.3% 62.9% 65.1% 65.8% 67.9% 69.1% 59.2% 58.5% 63.9% 56.1% Total 20,776 18,444 20,706 25,867 19,568 20,730 13,946 19,505 19,128 22,710 17,332 Source: Shared Research based on JSDA Online Securities Trading Activity (Monthly) data

Assuming that active traders accounted for 60% of the equity trading value for the four top online brokerages (excludes Monex, Inc.), the equity trading value of active traders was JPY123tn (calculated by taking the total equity trading value at the five major online brokerages excluding Monex, Inc. of JPY205tn x 60%) in FY03/19.

If Monex, Inc. were to capture 5% of the active trader market by offering TradeStation (note: Monex, Inc. has a 5.2% share of retail equity trading value), it could increase its equity trading value by JPY6tn (in FY03/19, its equity trading value was JPY14.2tn). The increase in brokerage commissions would be around JPY2.4bn, since TradeStation’s commission rates are roughly 0.04%, lower than the rates at Monex, Inc. The Japan segment’s brokerage commissions (stocks, ETF) totaled JPY10.3bn in FY03/19.

Scope for increasing financial income by attracting active traders For the margin trading balance, applying the same assumption––active traders accounting for 60% of the equity trading value of online brokerages––we estimate that active traders’ margin trading balance in FY03/19 was JPY1.1tn (balance of margin trades at five major online brokerages excluding Monex, Inc. of JPY1.8tn x 60%).

If Monex, Inc. were to capture 5% of the active traders in Japan through TradeStation, it could increase its margin trading balance by JPY53.0bn (FY03/19 balance was JPY157.0bn). In this scenario, the company could raise its net financial income by around JPY1.6bn, because the margin trading profit margin is 3.0%. The Japan segment’s net financial income totaled JPY7.8bn in FY03/19.

Comparing net operating revenue per account, Monex, Inc.’s brokerage commission per account is in line with its competitors, but financial income per account trends lower (see the Competition section for details). This means few Monex, Inc. customers are active traders. Shared Research thinks the introduction of TradeStation will lead to lower commission rates, but can provide Monex, Inc. the opportunity to expand revenue by winning active traders from its rivals.

Margin trading services enhanced (lower commissions, start of unlimited short selling in negotiable margin trades) Monex, Inc. was a latecomer to margin trades among online brokerages and ranked fifth out of the five major online brokerages in the number of margin trade accounts (third in overall number of trading accounts) and fifth in the balance of margin trades (third in assets under custody) in FY03/19.

Margin accounts FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 5-yr CA GR SBI Securities 314,183 355,375 409,473 462,555 527,102 592,312 13.5% Rakuten Securities 172,441 187,514 205,861 222,452 252,675 282,938 10.4% Monex, Inc. - 97,515 105,041 110,954 118,921 127,444 6.7% Mat sui Securit ies 147,788 159,375 169,534 177,242 184,731 190,961 5.3% kabu.com Securities 100,085 113,528 127,290 138,146 146,730 153,839 9.0% Source: Shared Research based on each company’s data Note: In the case of Monex, the 5-year CAGR reflects the average growth rate from FY03/15 through FY03/19

Margin account growth rate FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 SBI Securities 10.7% 10.9% 11.5% 12.0% 12.4% 12.8% Rakuten Securities 10.3% 10.2% 10.1% 9.9% 9.7% 9.4% Monex, Inc. - 6.4% 6.4% 6.5% 6.8% 7.0% Mat sui Securit ies 15.7% 15.9% 16.1% 16.2% 16.3% 16.1% kabu.com Securities 11.5% 12.3% 12.7% 13.2% 13.5% 13.8% Source: Shared Research based on each company’s data

32/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Margin trading balance (JPYmn) FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 5-yr CA GR SBI Securities 691,000 787,000 677,000 799,000 1,001,000 838,000 3.9% Rakuten Securities 322,252 358,480 303,752 353,418 468,483 405,325 4.7% Monex, Inc. 189,900 197,800 163,400 166,000 205,300 157,000 -3.7% Mat sui Securit ies 295,295 319,024 255,177 278,086 331,931 232,829 -4.6% kabu.com Securities 247,550 289,124 265,811 295,752 335,822 299,300 3.9% Source: Shared Research based on each company’s data

Per account margin trading balance (JPYmn) FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 SBI Securities 0.23 0.24 0.19 0.21 0.23 0.18 Rakuten Securities 0.19 0.19 0.15 0.16 0.18 0.13 Monex, Inc. 0.13 0.13 0.10 0.10 0.12 0.09 Mat sui Securit ies 0.31 0.32 0.24 0.25 0.29 0.20 kabu.com Securities 0.28 0.31 0.27 0.28 0.31 0.27 Source: Shared Research based on various company data

Since FY03/18, Monex, Inc. has lowered commissions on margin trades and started allowing unlimited short selling in negotiable margin trades as it looks to expand revenue from margin trades.

Margin trade commissions lowered Monex, Inc. lowered its commissions on margin trades in November 2017, revising fees per trade as follows: from JPY100 to JPY95 for transactions of JPY100,000 or less; from JPY450 to JPY190 for transactions of JPY500,000 or less, from JPY1,500 to JPY355 for transactions of JPY1mn or less, and from JPY3,000 to JPY800 for transactions of JPY2mn or less. Shared Research estimates this fee schedule revision pushed down the average commission rate on margin trades from 0.12% to 0.05%. However, lower commission rates could increase trading value and commissions received, and a higher margin trading balance would translate into higher net financial income. We therefore believe the overall impact of the fee schedule revisions will be positive on earnings.

In FY03/19, brokerage commission received of JPY10.8bn was down 24.3% YoY, as although the trading value of margin trades was level YoY, the trading value of cash trades declined and the commission rates on margin trades were lower. Financial income of JPY11.0bn was up 2.2% YoY. While the year-end balance of margin trades declined, the average full-year balance increased.

Retail equity trading value on the Tokyo and Nagoya stock exchanges declined 13.5% YoY, while equity trading value at Monex, Inc. fell 15.5% YoY. The decline at Monex, Inc. broke down to 27% in cash trading and 1% in margin trading, suggesting an increase in the company’s share of the overall retail margin trading market (Shared Research estimate based on company data). Meanwhile, the larger proportion of margin trading (with lower commission rates) in overall stock trading pushed down the company’s average commission rate by 0.009pp YoY to 0.074%. The margin trading balance fell 25.2% YoY on the two stock exchanges and 23.6% YoY at Monex, Inc. However, Monex Inc.’s average balance (of month-end balances) rose 0.8% YoY.

Unlimited short selling in negotiable margin trades commenced The stock exchange determines the tradeable equities, repayment periods, and other conditions in standardized margin trades. In contrast, investors and brokerages independently negotiate the repayment period, interest rates or stock lending rates, and the treatment of rights in negotiable margin trades. Negotiable margin trades became possible after the amendment to the Financial Instruments and Exchange Act in December 1998.

Monex, Inc. only offered long trades previously, but in March 2019 it started offering unlimited short selling in negotiable margin trades. As of May 2019, Monex, Inc. does not appear to have an advantage over rivals in the range of tradeable securities or services it offers, but Shared Research believes the move will likely provide an opportunity to grow revenue, offer customers with a broader range of services, and help keep customers from switching to different brokerages.

US segment Factors contributing to revenue growth in the US segment include increasing the number of active accounts following the introduction of a new fee structure (see below).

33/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

New fee structure According to the company, TradeStation is a trading platform that excels in real-time portfolio reporting and screening. It has won numerous awards, as well as achieving a 4.5-star rating eight years running for the Best for Frequent Traders category in Barron’s review of online brokerages.

In March 2017, TradeStation Securities introduced a new fee structure of USD5.00 per equity trade, and USD0.50 per contract plus USD5.00 per options trade. The previous plan was USD1.00 per equity trade plus a commission of USD0.006–USD0.01 per share (equities) and USD1.00 per contract (options). The company commented that the new fee plan is more straightforward and competitive, as it no longer includes charges for using the trading platform.

In addition to the new fee structure, the company worked to revamp its brand image by rolling out a new logo. As a result, the number of active accounts as of end-FY03/18 grew by 18.7% YoY, and as of end-FY03/19 by 21.1% YoY.

In August 2017, the company introduced a simple plan for futures trades that charges USD1.50 per contract (one way). In the previous pricing plan, the commission per contract (one way) varied according to the number of contracts traded per month. The company will continue to offer this plan as well.

Asia-Pacific segment Monex Boom Securities Group is a retail online brokerage based in Hong Kong. It was founded in 1997 and became a subsidiary of the Monex Group in December 2010. The company runs the Group’s operations for Hong Kong and seeks business opportunities in mainland China.

The Asia-Pacific segment has also established a joint venture with a brokerage in China to provide technical assistance to local online brokerages.

Monex Group launched the online brokerage operation of Monex Securities Australia Pty Ltd in 2H FY03/18. At the time of launch, it operated with less than eight local staff, but offers a service that provides access to stock markets in 12 countries. Shared Research thinks Monex Group plans to partner with local companies that will be responsible for marketing while it provides the trading platform.

New services based on new technologies The company believes that the data management technology based on blockchain and cryptocurrency mining will impact the capital markets and financial intermediaries in the future much as online brokers did in the early days of the internet. For that reason, the company announced its “New Beginning” initiative in October 2017 with plans to move into the cryptocurrency exchange business and develop its own blockchain technology in order to offer new services to retail investors, traders, and startup companies. In keeping with this plan, Monex Group acquired cryptocurrency exchange operator Coincheck, Inc. in April 2018.

Services for retail investors Faced with falling returns on traditional investments such as stocks and bonds, institutional investors are now investing in a wide range of financial products based on everything from electric power projects to farming. To securitize investments such as these in denominations that are accessible to retail investors, Monex plans to use blockchain technology to create smaller investment units for various types of assets so that retail investors will have more low-cost investment alternatives that were not available to trade in the past. Toward this end, the company is also talking with other industry member and regulatory authorities to lay the legal groundwork for such a move.

34/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Services for traders According to the company, the quantitative easing implemented by the Bank of Japan coupled with the growing use of index funds has reduced market volatility and the opportunities for profitable short-term trading. For this reason, the company plans to operate a cryptocurrency exchange and offer cryptocurrency trading services to individual traders.

Services for startup companies The company also intends to provide a financial support system for startup companies to provide the capital they need for growth. Starting with seed capital from its own group companies, in this area the company plans to also offer Series A and Series B funding, and serve as the lead manager position for initial public offerings. In conjunction with this, in October 2017 the company formed Monex Edison Investment Limited Partnership.

Monex Edison Investment Limited Partnership will provide seed capital for early stage start-up companies. Plans call for follow-on financing, including Series A and Series B, to be handled by consolidated subsidiary Monex Ventures, Inc. and for Monex, Inc. to act as the lead manager for initial public offerings.

Venture capital financing its typically done in stages or rounds, with the initial rounding of financing at the startup stage being referred as the seed funding round, followed by the Series A round (early stage funding), the Series B round (growth stage), and the Series C round (later stage).

Impact of Coincheck on consolidated results Founded in August 2012, Coincheck, Inc. is a cryptocurrency exchange operator. Coincheck is currently under a business improvement order from the Kanto Local Finance Bureau following the theft of cryptocurrency NEM that resulted from unauthorized access to its system in January 2018, and, pursuant to this order, is in the process of enhancing its governance and internal controls. Monex Group acquired all outstanding shares of Coincheck in April 2018, making it a wholly owned subsidiary. In addition to the JPY3.6bn paid to Coincheck shareholders, Monex Group agreed to make a contingent payment to Coincheck’s former shareholders of up to half of aggregated sum of net income generated over the next three fiscal years (starting in FY03/19), after deducting a certain amount to adjust for the level of realized business risk.

Sharing expertise between Coincheck and Monex, Inc. Monex Group says it intends to make full use of its expertise and human resources of business administration, system risk management, and customer asset protection system that it has acquired over the many years since its start as an online securities broker to support sustained growth of Coincheck. By integrating Coincheck’s expertise in blockchain technology and cryptocurrencies with its own expertise and experience in the financial industry, Monex Group is also looking to accelerate the implementation of its New Beginning initiative.

Client referrals between Coincheck and Monex, Inc. Coincheck has about 1.75mn accountholders (as of March 2019), most of which are in their 20s, 30s, or 40s. In contrast, most of the roughly 1.80mn accountholders at Monex, Inc. are in their 40s, 50s, and 60s. Because there is a substantial age gap between the core customers of the two companies, we can expect to see the group’s overall client base expand as Coincheck and Monex Inc. start referring clients to each other.

As part of these efforts, Monex, Inc. started a service that allows users to exchange Monex Points to cryptocurrency (Bitcoin, Ethereum, Ripple) in April 2019, available to accountholders of both Monex, Inc. and Coincheck.

Resumption of services and completion of business registration at Coincheck Coincheck had temporarily suspended services upon receiving an order for business improvement from the Kanto Finance Bureau concerning fraudulent remittances of cryptocurrency NEM caused by unauthorized access in January 2018. Coincheck resumed withdrawals and sales of cryptocurrencies from March through June 2018, and the opening of new accounts as well as deposits and purchases of some cryptocurrencies in October 2018. In January 2019, Coincheck completed registration with the Kanto Finance Bureau as a cryptocurrency exchange operator in accordance with regulations concerning fund settlements.

35/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Earnings impact from consolidation of Coincheck As for the impact of Coincheck on near-term results, Monex Group included Coincheck in consolidated results starting in FY03/19.

In FY03/19, the Crypto Asset segment booked operating revenue of JPY2.1bn and, after SG&A expenses of JPY4.8bn, an operating loss equivalent of JPY2.7bn. The majority of revenue came from trading losses/gains related to the withdrawals and sales of cryptocurrency holdings in the accounts of existing accountholders. Compared with FY03/18, the withdrawals and sales of cryptocurrency holdings declined due largely to sluggish prices in the cryptocurrency market and a decreased balance of customer cryptocurrency. Meanwhile, SG&A expenses rose as Coincheck moved to strengthen its internal control system.

36/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Business Business description Monex Group, Inc. got its start in April 1999 as online brokerage Monex, Inc. with CEO Oki Matsumoto and Sony Corporation ◤ as key investors. Matsumoto believed that using the internet even a startup could offer retail financial services, so he founded the company by harnessing the latest technology and financial knowledge on par with global standards to support retail investors.

The company grew in Japan by merging with Nikko Beans, Inc. in May 2005 and ORIX Securities in January 2010. It made ◤ Sony Bank Securities Inc. a subsidiary in August 2012. It also expanded overseas by adding Boom Group and TradeStation Group, Inc. to its list of subsidiaries in December 2010 and June 2011, respectively. In April 2018, the company acquired cryptocurrency exchange operator Coincheck, Inc., making it a wholly owned subsidiary.

Japanese brokerages can be categorized into full-service, mid-tier, local, and online firms. Monex Group operates a retail ◤ online brokerage Monex, Inc., which ranks among the top five online brokerages: the other four are SBI Securities, Rakuten Securities, Matsui Securities, and kabu.com Securities.

Service offerings are mainly in equities, forex, and investment trusts as well as futures, options, bonds, and cryptocurrency. ◤ The company also underwrites, but underwriting revenue makes up a limited amount of total revenue. Monex Group has stood out for its advanced trading tools, overseas subsidiaries, and in-house development of a backbone brokerage system. In addition, the company has a track record of offering advanced trading services before rivals.

Monex Group has five segments: Japan, US, Asia-Pacific, Crypto Asset, and Investment. Core businesses in each segment are ◤ Monex, Inc. in Japan, TradeStation Group, Inc. in the US, Hong Kong-based Boom Group in Asia-Pacific, Coincheck in Crypto Asset, and Monex Ventures in Investment. Earnings mainly come from the Japan, US, and Crypto Asset segments. Net operating revenue by segment (FY03/19): Japan 53.2%, US 40.0%, and Crypto Asset 4.3% (ratio of each segment’s net operating revenue to the sum of net operating revenues for all segments). Pre-tax profit by segment: Japan 68.3%, US 108.2%, Crypto Asset posted a loss of JPY1.7bn.

Monex, Inc. is the core business in Japan. Revenue comes from stock brokerage commissions received (41.4% of Japan ◤ segment net operating revenue in FY03/19), trading income (17.6% of revenue), and net financial income (30.4% of revenue). SG&A expenses are mainly fixed, with transaction-related expenses accounting for 22.3%, personnel expenses 17.6%, and system-related expenses 54.1% of segment SG&A expenses in FY03/19.

In FY03/19, main group subsidiary Monex, Inc. had 1.82mn accounts (third of the top five online brokerages; 15.4% share), ◤ total customer assets in custody of JPY4.0tn (third; 15.8%), equity trading value of JPY14.2tn (fifth; 6.5%), and margin trading balance of JPY157.0bn (fifth; 8.1%). Retail investors comprise active traders who trade frequently, investors who invest with a longer-term outlook, and investors with a buy and hold strategy. Monex, Inc.’s customers are mainly investors with a longer- term outlook. The company distinguishes itself from rivals through diverse ordering methods and trading tools, and this allows it to pass on higher commission rates on customers. Monex, Inc. was a latecomer to margin trading services among online brokerages. As a result, Shared Research understands that the weighting of active traders—who tend to be sensitive to commission rates and mostly conduct margin trades—is low.

The US business is centered on TradeStation Group. Net operating revenue consists of commissions received (62.1% of US ◤ segment net operating revenue in FY03/19) and net financial income (31.1%). US segment SG&A expenses comprise transaction-related expenses (35.5% of segment SG&A expenses in FY03/19), personnel expenses (40.2%), and system- related expenses (18.6%). Personnel expenses are high due to hiring systems developers.

The Crypto Asset segment derives the majority of its earnings from Coincheck, which offers cryptocurrency exchange ◤ services. Most of operating revenue comes from trading gains/losses, while SG&A expenses break down to trading-related expenses (14.9% of segment SG&A expenses in FY03/19), personnel expenses (36.2%), and office expenses (19.1%). As of end-FY03/19, Coincheck had 1.75mn registered users and 900,000 verified accountholders.

37/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Services and customer segments

The mainstay of Monex Group is the online brokerage business, and it operates five segments: Japan, US, Asia-Pacific, Crypto Asset, and Investment. Core services are offered by Monex, Inc. in Japan, TradeStation in the US, and Coincheck in the Crypto Asset segment.

Monex, Inc. (Japan segment)

Monex, Inc. is the company’s main subsidiary. The online brokerage industry is dominated by five players: SBI Securities, Rakuten Securities, Monex, Inc., Matsui Securities, and kabu.com Securities. These top five online brokers account for around 80% of the equity trading value of retail investors (see Market and value chain section for details). In FY03/19, Monex, Inc. had 1.82mn customer accounts (third among the top five online brokers in FY03/19), 127,000 margin accounts (fifth), customer assets in custody of JPY4.0tn (third), margin trading balance of JPY157.0bn (fifth), and equity trading value of JPY14.2tn (fifth).

As an online brokerage, Monex, Inc. mainly provides equity trading (cash and margin), forex margin trading, and investment trust services. To differentiate, the company focuses on upgrading trading tool features and educating investors, and offers an extensive non-Japanese equity trading service. The company also has a track record of being the first in Japan to introduce an after-hours trading service of Japanese equities, a stock lending service, and being the first online brokerage to serve as an IPO lead manager.

Monex’s customers are primarily retail investors. Compared with its rivals, the company has a larger share of customers who seek asset building over the longer term.

Equity trading Shared Research understands that in Japanese equity trading, key differentiating factors are low brokerage commissions and ease of use of trading tools. Although Monex, Inc. had the highest commission rates (brokerage commission / equity trading value) of the top five online brokerages in FY03/19, its trading tools are distinguished by the wide range of order options.

Two commission options: fees per trade or flat daily fees Monex, Inc. offers two types of fee plans for stock trading―fees per trade or flat daily fees. It also offers a separate fee structure for TradeStation, which targets active traders.

Commissions per trade Brokerage commissions are calculated based on the trade value of each transaction. The commission rate is approximately 0.10% on average. The company reduced its commission rate for margin trades in November 2017, shifting to a fee schedule lower than commission rates on cash transactions.

Commission per trade (cash trading) Trade value per transaction Desktop Mobile / smartphone apps JPY100,000 or less JPY100 per trade Over JPY100,000 up to JPY200,000 JPY180 Over JPY200,000 up to JPY300,000 JPY250 Over JPY300,000 up to JPY400,000 JPY350 Over JPY400,000 up to JPY500,000 JPY450 Over JPY500,000 up to JPY1,000,000 (market orders JPY 0.1 of trade value ） 1,000 ％ (limit orders JPY1,500 ） Over JPY1,000,000 (market orders) 0.1 of trade ％ value (limit orders) 0.15 of trade ％ value Source: Shared Research, based on company data Note: Loyalty points issued on approximately 50% of total monthly commission paid if it exceeds JPY300,000.

38/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Commission per trade (margin trading) Trade value per transaction Commission JPY100,000 or less JPY95 Over JPY100,000 up to JPY200,000 JPY140 Over JPY200,000 up to JPY300,000 Over JPY300,000 up to JPY400,000 JPY190 Over JPY400,000 up to JPY500,000 Over JPY500,000 up to JPY1,000,000 JPY355 JPY1,000,000 up to JPY1,500,000 JPY600 JPY1,500,000 up to JPY2,000,000 JPY800 Over JPY200,000,000 Flat rate of JPY1,000 Source: Shared Research, based on company data

Flat daily fees In the flat daily fee plan, Monex, Inc. offers a flat rate for every JPY3mn (each JPY3mn in trading value is referred to as a “box”) per day. The commission is a flat JPY2,500 per box regardless of the number of transactions, bringing the commission rate to around 0.08%. The fee per box goes down to JPY2,250 from the 21st box per month and to JPY1,650 from the 121st box per month. Day traders using this plan receive loyalty points for one of the two-way trades. The average commission rate for flat daily fees is around 0.08%.

Fee structures of Monex, Inc. and industry peers The five main online brokerages price their commissions per trade or based on daily trading value. kabu.com Securities offers a per-trade plan and Matsui Securities adopts a daily trading value-based fee structure. SBI Securities, Rakuten Securities, and Monex, Inc. offer both options.

SBI Securities, Rakuten Securities, and kabu.com Securities offer lower commission rates as the total trading value increases. This is also true for Monex, Inc.’s margin trading (fees per trade plan). Matsui Securities and cash trading at Monex, Inc. charge the same rate regardless of the total value. SBI Securities, Rakuten Securities, Monex, Inc., and kabu.com Securities set lower commission rates for margin trading than for cash trading, but Matsui Securities charges the same rates for both.

Top five online brokerages’ cash trading commissions

Brokerage Brokerage commission Trading value (JPY) Commis s ion r at e 100,000 200,000 300,000 500,000 1,000,000 2,000,000 3,000,000 Simple average Avg. for JPY500,000+ Monex, Inc. Per Trade Plan Per trade 100 180 250 450 1,000 2,000 3,000 0.09% 0.10% Daily Flat Rate Plan Per day JPY2,500 per JPY3,000,000 traded 0.08% 0.08% SBI Securities Standard Plan Per trade 90 105 250 487 921 0.06% 0.04% Active Plan Per day 0 191 286 429 762 1,162 1,562 0.07% 0.07% Rakuten Securities Super Discount Plan Per trade 90 105 250 487 921 0.06% 0.04% Daily Flat Rate Plan Per day 0 191 286 429 858 2,000 3,000 0.08% 0.09% Matsui Securities Per day 0 300 500 1,000 2,000 3,000 0.09% 0.10% kabu.com Securities Per trade 90 180 250 250 990 1,890 0.08% 0.08% Source: Shared Research based on company data *Simple average = simple average equity trading commission / trade value threshold

Top five online brokerages’ margin trading commissions

Brokerage company Brokerage commission Trading value (JPY) Commis s ion r at e (Per day, or per trade) 100,000 200,000 300,000 500,000 1,000,000 2,000,000 3,000,000 Simple average Avg. for JPY500,000+ Monex, Inc. Per Trade Plan Per trade 95 140 190 355 800 1,000 0.05% 0.04% Daily Flat Rate Plan Per day JPY2,500 per JPY3,000,000 traded 0.08% 0.08% SBI Securities Standard Plan Per trade 90 135 180 350 0.05% 0.03% Active Plan Per day 0 239 477 877 1,277 0.05% 0.05% Rakuten Securities Super Discount Plan Per trade 90 135 180 350 0.05% 0.03% Daily Flat Rate Plan Per day 0 191 286 429 858 2,000 3,000 0.08% 0.09% Matsui Securities Per day 0 300 (0) 500 1,000 2,000 3,000 0.09% 0.10% kabu.com Securities Per trade 90 135 180 180 760 940 1,100 0.06% 0.05% Source: Shared Research based on company data *Simple average = simple average equity trading commission / trade value threshold *Matsui does not charge commissions for trades of up to JPY300,000 in value per day during the first six months after a margin account is opened.

In FY03/19 commission rates (commission rates / equity trading value) were around 0.03% for SBI Securities, Rakuten Securities, and kabu.com Securities, 0.05% for Matsui Securities, and 0.08% for Monex, Inc. The company sets its commission rates higher than rivals, as it wants to receive appropriate commissions for its services and aims to differentiate through its trading tools, product range, and investor education programs. According to the company, average online brokerage commission rates fall

39/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

within the range of one stock’s price movement. Therefore, it thinks that by offering accelerated order placement and executing orders faster than stock price movements using automated trading can compensate for the higher commissions.

We believe SBI Securities and Rakuten Securities attract the most active traders because of their pricing structures. Matsui Securities and kabu.com Securities are also gaining traction, the former by starting the no-fee Margin Trading Service for Day- trades (from January 2013), and the latter by lowering commission rates on margin trades and introducing a preferential fee plan for large-lot trades (from November 2013). In contrast, the majority of Monex, Inc. customers seek longer term asset building.

Monex Group has harnessed the technology at its US subsidiary TradeStation Group since March 2016 to offer a Japanese equities version of its trading tool TradeStation targeted at active traders, offering brokerage services at relatively low commission rates in a bid to expand its active trader user base.

TradeStation launch in Japan TradeStation, a Japanese equities trading tool for active traders, was launched in March 2016. It was developed by Monex, Inc., and Monex Group’s US subsidiaries TradeStation Securities and TradeStation Technologies. The original US version of TradeStation is highly rated by active traders and has won numerous awards, as well as achieving a 4.5-star rating eight years running for the Best for Frequent Traders category in Barron’s review of online brokerages.

According to the company, TradeStation offers the fastest order placement speed at an average of 6.6 milliseconds versus kabu.com Securities’ median value of 33 milliseconds (the fastest among all Japanese online brokerages excluding Monex) and is equipped with advanced features for active traders such as real-time monitoring of registered stocks (can sort in real time the percentage change of 2,000 stocks), screening (can access over 200 indices), and backtesting (evaluate trading strategies using past data). TradeStation also uses a proprietary programming language EasyLanguage, which allows active traders to customize indicators, trade signals, and program trades.

TradeStation’s fee structure (based on daily trade value) is JPY50 per JPY100,000 (Mini Plan), JPY400 per JPY1mn (Normal Plan), and JPY3,250 per JPY10mn (Large Plan, available to customers with margin trading accounts only). The average commission rate is around 0.04%.

Many trading order options Compared with its rivals, Monex offers a wider selection of trading order options for both cash and margin equity trades. As shown in the table below, in addition to stop and one-cancels-the-other (OCO) orders, it also provides options for advanced orders such as market-if touched (MIT) orders, sequential orders, and reverse orders, which are only offered by few online brokerages.

Top five online brokerages’ trading order options Sequential Stop and Market-if- Stop orders OCO orders orders reverse orders touched orders Monex, Inc. Accepted Accepted Accepted Accepted Accepted SBI Securities Accepted Rakuten Securities Accepted Stop limit orders Set orders Matsui Securities Accepted Trail limit orders If-done orders kabu.com Securities Accepted Double limit Relay orders U-turn orders Source: Shared Research based on company data

Stop order: A stop order works in the opposite direction of a limit order. A buy stop order is placed at a specified price above the market and a sell ・ order at a price below the market; the order becomes active when the stock price reaches the specified price (the stop price) One-cancels-the-other (OCO) order: A type of conditional order where a limit order to secure a profit and a stop order to minimize loss are placed as ・ parallel orders in such a way that when one order is filled, the other is cancelled. Investors can specify their range of risk tolerance. Sequential order: A type of conditional order where once the first order is executed, the next order in a set sequence is triggered (e.g., once stock A is ・ sold, a buy order for stock B is automatically placed. Stop and reverse order: A type of conditional order where the execution of an entry order triggers the exit order for that position (e.g., once the buy ・ order for stock A is executed, a sell order for stock A at a price JPY50 higher is placed.

40/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Market-if-touched (MIT) order: A limit order where the investor specifies the price as one bid or ask price better than the bid/ask price at the time of ・ order

Margin trading Monex, Inc. provides standardized and negotiable margin transactions. It does not offer a dedicated day-trade service equivalent to Matsui’s Margin Trading Service for Day-trades service. As the company was a latecomer to margin trading services among online brokerages, Monex, Inc. ranked fifth among the five major online brokerages in margin trading accounts (third in overall accounts) and fifth in margin trading balance (third in assets under custody) in FY03/19.

In a standardized margin transaction, conditions of margin trades are based on rules set by the stock exchanges (e.g., designating tradable stocks and deadlines for repaying borrowed cash and stocks). In a negotiable margin transaction, conditions of margin trades such as repayment deadlines can be decided freely between the investor and the brokerage.

Matsui Securities, SBI Securities, and Rakuten Securities have margin trading services dedicated to day traders. Matsui and Rakuten do not charge a commission, but collect interest and stock lending fees based on the trading value.

Commission rates on margin trades Refer to the Equity trading section for the fee schedule for margin trades. Monex, Inc. revised its fee schedule for margin trades in November 2017, lowering its commission rates on margin trades.

Interest rates and stock lending fees on margin trades Monex, Inc.’s interest rates and stock lending fees for margin trades are the third lowest of the five major brokerages (following SBI Securities and Rakuten Securities). The company previously only offered long trading services, but also began offering unlimited short selling services in negotiable margin trading in March 2019.

Interest rates and stock lending fees for margin trading services (top five online brokerages)

Brokerage Standardized margin trade General margin trade Margin General margin trade Margin Interest Stock lending Interest Stock lending requirement Short stock requirement rate fee rate fee (minimum) availability Monex, Inc. 2.80% 1.15% 3.47% 1.10% 30% 25% 280 Matsui Securities 3.10% 1.15% 4.10% 2.00% 31% 20% 922 SBI Securities 2.80% 1.15% 2.80% 1.10% 33% 20% 1,964 Rakuten Securities 2.80% 1.10% 2.80% 1.10% 30% 20% 3,580 kabu.com Securities 2.98% 1.15% 2.79% 1.50% 30% 25% 2,249 Source: Shared Research based on company data

Forex margin trading Monex, Inc. offers a forex margin trading service called FX Plus. It has also continued to provide a service called Monex FX, previously provided by former Tokyo Forex Co., Ltd., which became a Monex Group subsidiary in April 2008 and was absorbed by Monex, Inc. in February 2015. In forex margin trading, competition also includes securities brokers that specialize in the field, such as GMO Click Securities and DMM.com Securities.

Forex spreads FX Plus previously set a relatively large spread of 2 pips (around JPY0.02) for the USD/JPY currency pair, versus JPY0.0027 for SBI Securities, and JPY0.003 for Rakuten Securities and GMO Click Securities. However, FX Plus reduced its spreads for all currency pairs from November 2018, lowering the spread for the USD/JPY pair to JPY0.003 (fixed in principle, but conditions apply).

Forex commissions Most other online brokerages do not charge a commission. Monex, Inc.’s FX Plus has no commissions for trades of over 10,000 lots, but JPY30 per every 1,000 lots. Monex FX charges no commission and the spread for the USD/JPY currency pair is JPY0.002 (fixed in principle, but conditions apply).

41/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

In a forex margin trade, the currency exchange rate the forex broker offers comprises an “ask” price (the price at which the currency can be purchased) and a “bid” price (the price at which it can be sold). The difference between the ask and bid prices is called the spread. For example, if a USD/JPY pair has an ask of JPY100.03 and a bid of JPY100.0, the spread is JPY0.03.

The broker generates revenue by offsetting customers’ buy and sell orders (marrying them in-house), and the spread between the ask and bid prices becomes the source of the broker’s revenue.

Forex trading tools FX Plus has offered an Autorail ordering method (automatic repeat trail orders) since January 2017, and Trade Karte FX (an AI- powered tool that analyzes customer trading behavior and provides assistance to users looking to improve their forex trading skills) since January 2018.

Autorail Autorail is an automated ordering method that automatically and continuously engages in forex trading on a single setting. Monex claims that this method maximizes profit if the market moves as expected or in a range, while the trail order features are also designed to minimize losses if the market moves contrary to expectations.

A trail order, the base of Autorail ordering, is a stop-loss order method that trails real-time exchange rate fluctuations and automatically adjusts the order price to keep the loss within a preset range. A buy trail order tracks the upward movement of the exchange rate and automatically adjusts the order price; once the order price is adjusted upward, it will not fall even if the market rate goes down.

Autorail order

(JPY) Trailing order execution 102 Market rate moves

101

100

The trail price adjusts upward trailing This spread becomes 99 market rate rises, and is fixed when the the gain market rate falls

Source: Shared Research based on company data.

Autorail continuously places these trail orders by following a set of rules. The rules kick in when the market rate reaches the trigger rate preset by the investor, which results in a new trail order being placed. Investors usually set multiple trigger prices, and trail orders are placed every time the market rate reaches the trigger price, but multiple trail orders will not be placed simultaneously at the same trigger price. Trail orders at the same trigger price can only be activated when the first trail order is executed and the market rate hits the trigger price again for a repeat trail order.

42/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Autorail repeat trail order

105 Large gains from trailing Buy and sell repeated even prices in a upswing; when the market is in a S 104 range, leading to repeated timely stop loss during an gains 103 unexpected downswing B

102 S S 101 B B B

100

B 99 Each order is a simple trail order. Multiple trails enable 98 sequential trade to max imize gains and minimize losses S 97 B B

96 S B

95 B (base)

Source: Shared Research based on company data Note: B stands for buy, s for sell

Trade Carte FX Trade Carte FX is Monex Group’s AI-powered tool that analyzes customer trading behavior and provides assistance to customers looking to improve their forex trading skills.

Trade Carte FX has employed machine learning to analyze roughly two million forex transactions and derive over 100 indicators categorized into five classes. Customers select a trading AI type that matches their trading preferences and use a “diagnosis” provided by AI to understand the difference between their current trading style and their ideal trading style. Customers also receive a “prescription” on how to close the gap between their preferred and actual trading style. This is done by visualizing differences in the timing of trade execution and other potential problems in their trading technique.

Investment trusts As of May 2019, Monex, Inc. offered a lineup of 1,187 funds. The balance of investment trusts was roughly JPY401.0bn in FY03/19 (+1.1% YoY).

Monex, Inc. has marketed investment trusts for many years and has a long track record of providing highly specialized investment trusts to retail investors. Thus, the balance of investment trusts held in accounts at Monex was higher than that of Rakuten Securities until FY03/12. Since FY03/13 Monex has been outpaced by Rakuten and has been ranked third out of the five online brokerages in both the number of funds offered and balance of investment trusts. As of May 2019, there were three funds that could be purchased only through Monex. Still, the impact of these funds on the company’s overall balance of investment trusts appears to be limited.

Monex, Inc. led the industry in offering highly specialized investment trusts to retail investors, including alternative investment products and robo-funds.

In October 2004, Monex and Asuka Asset Management founded Monex Alternative Investments, Inc. (MAI) to provide alternative ▷ retail investment products. MAI set up a fund of hedge funds and a fund incorporating private equity funds, sold by Monex, Inc. (Note, in June 2012, Monex Group sold its shares in MAI to ASTMAX Co., Ltd., now Astmax Trading, Inc. [JASDAQ: 7162] and acquired 15% of outstanding shares in ASTMAX.) In July 2005, Monex Group began offering its first fund of hedge funds––Fullerton-Monex Asian Fund of Hedge Funds, which ▷ focused on investments in Asia including Japan. (Total net assets were approximately JPY101bn as of end FY03/07, but the company exercised advanced redemption in October 2016.)

43/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

In August 2006, the company began selling fund of funds Premium Hybrid 2006, incorporating private equity funds investing in ▷ unlisted stocks and hedge funds (net assets of approximately JPY4.2bn as of March 31, 2007). Premium Hybrid 2007 followed in October 2007, with net assets of roughly JPY2.2bn as of March 31, 2008. For robo-funds, the company launched Kabu-robo Fund (robo-fund investing in Japanese stocks) managed by an automated ▷ trading program that analyzes the market and companies for stock selection, determines the volume and price for buying and selling, and trading methods. The fund’s net assets as of August 1, 2017 were approximately JPY1.2bn.

US equities trading Monex, Inc. fully revamped its US equities trading service in November 2012 by introducing a trading platform developed by the group’s subsidiaries TradeStation Securities and TradeStation Technologies. It made TradeStation Securities its intermediary for placing orders in US equities. According to the company, these initiatives have enabled it to offer the largest number of US stocks among Japanese brokers (approximately 3,000 stocks) at the lowest commissions (0.45% of transaction value, with a minimum fee of USD5 and maximum fee of USD20) and for the longest trading hours. The platform used for trading US equities is also TradeStation, which offers charting (access to 50 years of historical data) and backtesting functions. In March 2017 the company began offering TradeStation Mobile app to trade US stocks from a smartphone. Using the TradeStation Mobile app, customers can trade around the clock.

Customers Compared with other online brokers, Monex, Inc. has a higher active account ratio and customer assets per account are also relatively high. It charges higher commissions among the five major online brokerages, but the ratio of margin accounts to total accounts is small, indicating that its customers seek long-term asset building, and few of them are active traders.

Monex, Inc. has a larger share of customers in their 30s and 40s Monex, Inc.’s customers are mostly in their 40s and 50s but compared with rivals, Monex, Inc. has more customers in their 30s and 40s and fewer in their 60s and 70s. Shared Research has noticed that, among online brokers, those that also accommodate person-to-person broking tend to have a lot of accounts holders that are older. At Monex, almost all trading is done online, and we believe this explains why most of its customers tend to be younger.

Active accounts by age group Active accounts at brokerages Active accounts at Monex, Inc. offering online trading

Over 70 11.8 17.9 ％ ％ 60s 14.8 18.2 ％ ％ 50s 23.3 20.5 ％ ％ 40s 28.9 23.0 ％ ％ 30s 14.8 14.7 ％ ％ Below 30 6.0 5.8 ％ ％ Source: Shared Research based on company data and results of survey on online trading conducted by the Japan Securities Dealers Association at the end of September 2017.

High active account ratio and customer assets in custody Monex noted its active account ratio was 58% as of end-FY03/19, exceeding the average of 54% for other major online brokers (SBI Securities, Rakuten Securities, Matsui Securities, kabu.com Securities). Customer assets per account has also trended second to SBI Securities.

44/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Customer assets per account (JPYmn) FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 SBI Securities 2.2 2.3 2.5 2.3 2.4 2.7 2.5 Rakuten Securities 1.6 1.6 1.9 1.7 1.8 1.9 1.9 Monex, Inc. 2.1 2.2 2.4 2.1 2.2 2.4 2.2 Mat sui Securit ies 2.0 2.0 2.2 2.0 2.1 2.2 2.0 kabu.com Securities 1.8 1.9 2.2 1.9 2.0 2.1 2.0 Source: Shared Research based on each company’s data

Lower trade frequency Comparing how frequently customers trade (equity trading value / customer assets in custody), customer trade frequencies of the company hovers below its competition.

Frequency of transactions of five online brokerages (equity trade value / customer assets in custody) FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 SBI Securities 10.1 20.8 14.5 14.0 10.5 10.7 8.7 Rakuten Securities 11.7 22.3 14.6 13.2 10.6 11.4 9.9 Monex, Inc. 4.4 8.0 5.0 4.7 3.7 4.2 3.4 Mat sui Securit ies 8.4 22.3 17.7 18.1 16.0 14.8 11.7 kabu.com Securities 8.6 18.0 14.6 14.5 11.6 12.5 10.7 Source: Shared Research based on each company’s data

Active traders prefer margin trading, because it allows them to use leverage. The margin account ratio and the margin trading balance per account at Monex, Inc. are lower than those of its rivals. The company attributes this to the relatively late start of margin trading at Monex, Inc. and to its higher commission rates for margin trades compared with its online rivals.

Margin account ratio FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 SBI Securities 10.2% 10.7% 10.9% 11.5% 12.0% 12.4% 12.8% Rakuten Securities 10.5% 10.3% 10.2% 10.1% 9.9% 9.7% 9.4% Monex, Inc. - - 6.4% 6.4% 6.5% 6.8% 7.0% Mat sui Securit ies 15.5% 15.7% 15.9% 16.1% 16.2% 16.3% 16.1% kabu.com Securities 11.0% 11.5% 12.3% 12.7% 13.2% 13.5% 13.8% Source: Shared Research based on each company’s data

Margin trading balance per account (JPYmn) FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 SBI Securities 0.20 0.23 0.24 0.19 0.21 0.23 0.18 Rakuten Securities 0.18 0.19 0.19 0.15 0.16 0.18 0.13 Monex, Inc. 0.13 0.13 0.13 0.10 0.10 0.12 0.09 Mat sui Securit ies 0.33 0.31 0.32 0.24 0.25 0.29 0.20 kabu.com Securities 0.25 0.28 0.31 0.27 0.28 0.31 0.27 Source: Shared Research based on each company’s data

TradeStation Group (US)

Founded in 1982 as a system development company, TradeStation Group became an online brokerage known for its technological prowess after acquiring an online broker and starting its own online brokerage business. Its proprietary trading/analytics platform is highly rated by active traders. The company has been a subsidiary of Monex Group since June 2011. As of end-FY03/19, TradeStation Group had a customer base of 90,579 active accounts (+21.1% YoY) and customer assets in custody totaling USD5.5bn (+6.8% YoY). Industry peers include TD Ameritrade, Charles Schwab, E*Trade, and Fidelity Investment.

The company provides equity, futures, and options trading services to active traders.

Commissions Equities TradeStation introduced a new fee structure in March 2017, charging a flat USD5.00 per trade. For customers who make many small-lot trades, the company offers a fee structure which charges USD1.0 per trade plus a per-share commission ranging from USD0.006–0.01.

45/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

In addition, TradeStation will continue to provide an unbundled pricing plan* for customers who trade more than 100,000 shares per month, which cuts commission per share to USD0.002 due to rebates paid on commissions for each trade executed. * Commissions are based on the number of traded shares per month in the unbundled pricing plan. Fees are charged or rebates are paid depending on the stock exchange.

Options TradeStation introduced a new fee structure for options trading in March 2017, charging USD5.00 per trade plus USD0.50 per contract. It will continue to offer its previous plan of USD1.00/contract.

Futures The new, simplified pricing plan for futures introduced in August 2017 charges USD1.50 per contract, per side. In the previous plan, a commission was charged per contract, per side based on the number of contracts per month. If the number of contracts per month exceeded 20,000, the per-contract commission was USD0.25. The company is continuing to offer this plan as well, which is better suited to customers who frequently trade a smaller number of contracts and wish to avoid high trading costs.

TradeStation is also continuing to offer a fee plan of USD1.50 per contract, per side for trading futures options and futures using the “Futures+” trading platform.

Fee structures of industry peers Each of the following online brokerages in the US lowered their commissions in 2017.

Charles Schwab: from US8.95 to USD4.95 for stocks; from USD0.75 to USD0.65 for options (February 2017) ▷ Fidelity Investment: from USD7.95 to USD4.95 for stocks; USD0.75/contract to USD0.65/contract for options (February 2017) ▷ TD Ameritrade: from USD9.99 to USD6.95 for stocks (February 2017) ▷ E*Trade: from USD9.99 to USD4.95 for stocks; from USD0.75/contract to USD0.5/contract for option trades targeting active ▷ traders (March 2017)

Fee structures of major US online brokerages Minimum Stock trade Opt ion fee Futures (USD) Deposit Fee (flat) Base Per contract TradeStation 500 5.00 5.00 0.50 1.50 Fidelit y 2,500 4.95 4.95 0.65 - TD Ameritrade 0 6.95 6.95 0.75 2.25 E*Trade 500 6.95 6.95 0.75 1.50 Charles Schwab 0 4.95 4.95 0.65 - Source: Shared Research based on each company’s data

Following this market trend, in March 2017 TradeStation reduced its commissions for both stock and options transactions, which now are among the lowest in the industry.

Trading platform In the US, online brokerages are rated based on their fee structures, trading tools, research report offerings, and customer support. TradeStation is a highly recognized trading platform.

46/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Major US online brokerages Research No. of indices reports for charts Excels in real-time reporting/screening features; offers backt est ing using over 40 years of hist orical dat a. Propriet ary TradeStation N/A 270 programming language EasyLanguage allows active traders to customize indicators and trade signals, and program trades.

Low commission rat es. Highly recognized for qualit y of order Fidelit y 12 166 execution and a research tool offering access to third party research reports (12 companies).

High commission rat es, but offers qualit y t rading plat form, TD Ameritrade 7 370 research, investor education, and customer services.

High commission rates. Customers required to have a E*Trade 4 118 minimum balance. Highly rat ed t rading plat form and mobile app. Low commission rates. Highly rated for strong research Charles Schwab 8 40 capabilit y; offers propriet ary st ock rat ings.

Source: Shared Research based on each company’s data

TradeStation’s trading platform has won multiple awards in the US for its real-time portfolio monitoring and screening functions and a backtesting feature with access to over 40 years of historical data.

TradeStation announced in March 2018 that it achieved a 4.5-star rating eight years running for the Best for Frequent Traders ▷ category in Barron’s review of online brokerages. TradeStation announced in February 2019 that it was rated Best Platform Technology in the Online Broker Review conducted by ▷ US online financial medium StockBrokers.com for the seventh consecutive year. In addition, TradeStation was rated Best in Class in the Mobile Trading, Options Trading, Active Trading, Platform & Tools, and Professional Trading categories. TradeStation received top ratings in the 2018 Technical Analysis of Stock and Commodities (TASC) Reader’s Choice Awards in ▷ February 2019. TASC readers voted TradeStation Best Trading System – Stocks and Best Trading System – Futures for the 15th consecutive year. TradeStation also ranked highest in two other categories. TradeStation announced in February 2019 that it was selected for Best Online Stock Brokers: Equity Trading Tools, and ranked in ▷ the top three for Best Online Stock Brokers: Options Trading Platform and Best Online Stock Brokers: Educational Resources in the seventh annual survey of active investors (2,762 active investors) conducted by Investor’s Business Daily.

47/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Earnings structure Earnings structure FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 (JPYmn) IFRS IFRS IFRS IFRS IFRS IFRS IFRS Operating revenue 36,090 54,722 50,975 54,271 45,831 53,635 52,175 YoY 18.1% 51.6% -6.8% 6.5% -15.6% 17.0% -2.7% Commissions received 20,367 33,542 30,079 32,152 26,349 29,196 25,741 YoY 19.6% 64.7% -10.3% 6.9% -18.0% 10.8% -11.8% % of net operating revenue 60.3% 67.0% 66.5% 64.8% 63.0% 59.4% 54.3% Brokerage 15,676 27,572 23,822 25,317 20,141 22,540 19,463 YoY 20.2% 75.9% -13.6% 6.3% -20.4% 11.9% -13.7% Equity and ETF 11,303 22,013 17,584 17,795 14,193 15,974 12,610 Futures and options 4,189 5,429 6,217 7,522 5,948 6,566 6,851 OSE FX 184 130 22 - - - 3 Underw rit ing and dist ribut ion 47 121 100 153 136 172 70 Subscript ion and dist ribut ion 494 917 708 792 442 459 355 Ot her commissions 4,149 4,932 5,449 5,890 5,629 6,025 5,852 YoY 19.7% 18.9% 10.5% 8.1% -4.4% 7.0% -2.9% FX fees (OTC retail FX) 73 147 103 117 116 79 69 Administrative and transfer fees for margin trading 409 367 355 343 Agent fee for investment trust trading 1,273 1,518 1,702 1,737 1,539 1,692 1,677 Others 2,803 3,267 3,643 3,628 3,607 3,899 3,762 Net t rading income 6,974 8,011 6,242 6,671 4,498 3,865 6,461 YoY 12.5% 14.9% -22.1% 6.9% -32.6% -14.1% 67.2% % of net operating revenue 20.7% 16.0% 13.8% 13.4% 10.7% 7.9% 13.6% Interest income 8,195 12,583 13,987 14,610 14,313 19,349 19,242 YoY 20.3% 53.5% 11.2% 4.5% -2.0% 35.2% -0.6% % of net operating revenue 24.3% 25.1% 30.9% 29.4% 34.2% 39.4% 40.6% Other operating revenue 554 587 667 839 671 1,225 731 Financial expenses 2,320 4,672 5,766 4,629 3,979 4,480 4,758 YoY 37.9% 101.4% 23.4% -19.7% -14.0% 12.6% 6.2% Net operating revenue 33,769 50,051 45,209 49,642 41,852 49,155 47,417 YoY 16.9% 48.2% -9.7% 9.8% -15.7% 17.4% -3.5% SG&A expenses 30,359 34,981 37,143 41,395 40,578 39,853 44,690 YoY 16.5% 15.2% 6.2% 11.4% -2.0% -1.8% 12.1% SG&A as % of net operating revenue 89.9% 69.9% 82.2% 83.4% 97.0% 81.1% 94.2% Operat ing profit equivalent 3,410 15,069 8,066 8,247 1,274 9,302 2,727 YoY 20.6% 341.9% -46.5% 2.2% -84.6% 630.1% -70.7% OP equivalent as % of net operating revenue 10.1% 30.1% 17.8% 16.6% 3.0% 18.9% 5.8% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

48/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

SG&A expense breakdown

(JPYmn) FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 IFRS IFRS IFRS IFRS IFRS IFRS IFRS SG&A expenses 30,359 34,981 37,143 41,395 40,578 39,853 44,690 YoY 16.5% 15.2% 6.2% 11.4% -2.0% -1.8% 12.1% T rading-relat ed 10,223 12,235 13,236 13,862 11,281 11,963 12,051 YoY 16.3% 19.7% 8.2% 4.7% -18.6% 6.0% 0.7% Commissions paid 3,819 4,712 5,151 5,312 4,114 4,125 4,609 Stock exchange and association fees 860 1,435 1,251 1,154 808 897 765 Telecom, transportation, and information 3,518 3,821 4,074 4,385 3,675 3,535 3,686 Advertising expenses 1,958 2,114 2,596 2,848 2,567 3,159 2,687 Others 68 154 163 162 117 247 305 Personnel 8,503 9,613 9,538 10,651 10,393 10,854 13,111 YoY 38.0% 13.1% -0.8% 11.7% -2.4% 4.4% 20.8% Real estate-related 1,833 1,934 2,321 2,497 2,855 3,898 5,058 YoY 2.5% 5.5% 20.0% 7.6% 14.3% 36.5% 29.8% Real estate 994 804 835 805 931 1,094 1,235 Furniture and fixtures 839 1,129 1,487 1,692 1,923 2,804 3,824 Office and supplies 4,752 5,404 5,396 5,935 5,737 2,727 2,986 YoY -2.6% 13.7% -0.1% 10.0% -3.3% -52.5% 9.5% Outsourcing 4,699 5,330 5,340 5,865 5,679 2,646 2,923 Office supplies 53 75 56 70 57 81 63 Depreciat ion 3,116 3,441 3,942 4,911 7,094 8,117 8,392 YoY 29.5% 10.4% 14.6% 24.6% 44.5% 14.4% 3.4% Taxes and dues 257 359 341 504 652 516 621 Other 1,676 1,996 2,369 3,035 2,566 1,777 2,470 V ariable cost s 4,529 5,702 5,864 6,003 4,703 4,727 4,913 Variable cost ratio (% of commissions received) 22.2% 17.0% 19.5% 18.7% 17.8% 16.2% 19.1% Variable cost ratio (% of net operating revenue) 13.4% 11.4% 13.0% 12.1% 11.2% 9.6% 10.4% Fixed cost s 25,831 29,280 31,280 35,393 35,876 35,126 39,778 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

Segment earnings

FY03/17 FY03/18 FY03/19 (JPYmn) Japan US AP Japan US AP Crypto Asset Investment Japan US AP Crypto Asset Investment Operating revenue 28,775 18,683 713 31,205 20,002 939 - 2,772 27,729 22,798 829 2,116 414 YoY -15.8% -18.5% -14.7% - 7.1% 31.7% - - -11.1% 14.0% -11.7% - -85.1% Commissions received 15,267 10,857 348 16,968 11,858 557 - - 13,301 12,014 406 186 - YoY -21.4% -12.5% -23.2% 11.1% 9.2% 60.1% - - -21.6% 1.3% -27.1% - - Brokerage 12,547 7,371 348 14,082 8,091 554 - - 10,650 8,573 404 3 - YoY -21.7% -17.8% -22.7% 12.2% 9.8% 59.2% - - -24.4% 6.0% -27.1% - - Equity and ETF 12,124 1,844 348 13,733 1,874 554 - - 10,339 2,033 404 - - Futures and options 421 5,526 - 349 6,218 - - - 311 6,540 - - - OSE FX ------Cryptocurrency ------3 - Underw rit ing and dist ribut ion 136 - - 172 - - - - 70 - - - - Subscript ion and dist ribut ion 443 - - 459 - - - - 355 - - - - Ot her commissions 2,142 3,487 1 2,255 3,767 3 - - 2,226 3,441 - 183 - YoY -12.7% 1.3% -50.0% 5.3% 8.0% 200.0% - - -1.3% -8.7% - - - FX fees (OTC retail FX) 116 - - 79 - - - - 69 - - - - Administrative and transfer fees for margin trading 367 - - 355 - - - - 343 - - - - Agent fee for investment trust trading 1,539 - - 1,692 - - - - 1,677 - - - - Other 120 3,488 - 129 3,767 3 - - 136 3,441 2 183 - Net t rading income 4,498 - -1 3,865 - - - - 4,535 - -3 1,929 - YoY -20.7% - - -14.1% - - - - 17.3% - - - - Financial income 8,803 5,492 237 9,640 6,946 227 - 2,772 9,808 9,221 301 - 414 YoY -0.6% -4.3% 2.6% - 26.5% -4.2% - - 1.7% 32.8% 32.6% - -85.1% Other operating revenue 207 1,242 130 732 1,141 155 - - 86 1,282 126 - - Financial expenses 2,083 2,115 6 2,177 2,535 8 - - 1,990 3,214 22 39 - Net operating revenue 26,693 15,616 707 29,028 17,417 931 - 2,772 25,739 19,338 808 2,077 414 YoY -16.1% -15.8% -14.8% - 11.5% 31.7% - - -11.3% 11.0% -13.2% - -85.1% SG&A expenses 25,051 15,858 731 23,420 16,487 922 - 15 23,013 17,250 883 4,766 23 YoY 7.4% -13.8% -3.7% - 4.0% 26.1% - - -1.7% 4.6% -4.2% - 53.3% % of net operating revenue 93.8% 101.5% 103.4% 80.7% 94.7% 99.0% - 0.5% 89.4% 89.2% 109.3% 229.5% 5.6% Operat ing profit equivalent 1,643 -242 -24 5,608 931 9 - 2,757 2,726 2,088 -75 -2,689 391 YoY -80.7% ------51.4% 124.3% - - -85.8% % of net operating revenue 6.2% - - 19.3% 5.3% 1.0% - 99.5% 10.6% 10.8% - - 94.4% Other revenue 5,470 54 - 847 2 61 - 26 1,944 - 30 976 2 Other expenses 5,345 268 73 656 651 295 - - 3,423 111 4 18 9 Pre-tax profit 1,768 -457 -98 5,799 281 -225 - 2,782 1,247 1,978 -48 -1,732 382 YoY -70.0% ------78.5% 603.9% - - -86.3% % of net operating revenue 6.6% - - 20.0% 1.6% - - 100.4% 4.8% 10.2% - - 92.3% Profit 866 -497 -97 3,807 1,274 -246 - 1,751 1,131 1,439 -13 -1,826 326 % of net operating revenue -77.5% ------70.3% 13.0% - - -81.4% Profit attributable to owners of the parent 1,004 -497 -97 3,958 1,274 -246 - 1,751 1,284 1,439 -13 -1,826 326 YoY -74.2% ------67.6% 13.0% - - -81.4% % of net operating revenue 3.8% - - 13.6% 7.3% - - 63.2% 5.0% 7.4% - - 78.7% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Full-year segment results are the totals of quarterly results.

49/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

SG&A expense breakdown by segment

FY03/17 FY03/18 FY03/19 (JPYmn) Japan US AP Japan US AP Crypto Asset Investment Japan US AP Crypto Asset Investment SG&A expenses 25,050 15,858 731 23,420 16,487 922 - 15 23,013 17,250 883 4,766 23 YoY 7.4% -13.8% -3.7% - 4.0% 26.1% - - -1.7% 4.6% -4.2% - 53.3% Trading-related expenses 5,323 5,869 226 5,787 6,043 332 - 11 5,135 6,126 268 709 5 YoY -16.3% -21.8% 10.8% - 3.0% 46.9% - - -11.3% 1.4% -19.3% - -54.5% Commissions paid 1,230 2,964 55 1,398 2,842 85 - 9 1,414 3,129 43 213 2 Stock exchange and association fees 694 113 - 797 101 - - - 645 120 - - - Telecom, transportation, and information 1,780 1,801 93 1,668 1,773 94 - - 1,731 1,482 96 377 - Advertising expenses 1,506 990 73 1,784 1,231 144 - - 1,212 1,264 124 84 2 Other 113 - 3 140 97 9 - 2 133 131 6 35 1 Personnel 4,206 5,912 276 4,028 6,469 357 - 1 4,046 6,944 391 1,726 5 YoY 3.9% -6.1% -10.7% - 9.4% 29.3% - - 0.4% 7.3% 9.5% - 400.0% Occupancy and rental 3,141 449 57 3,578 1,012 66 - - 4,361 1,085 68 281 - YoY 17.6% 7.7% -1.7% 13.9% 125.4% 15.8% - - 21.9% 7.2% 3.0% - - Occupancy 499 381 50 659 374 61 - - 538 353 62 281 - Furniture and fixtures 2,641 65 6 2,919 638 5 - - 3,823 732 5 - - Office and supplies 5,677 - 58 2,666 29 32 - - 2,006 22 46 911 1 YoY -2.9% - -31.8% -53.0% - -44.8% - - -24.8% -24.1% 43.8% - - Outsourcing 5,622 - 56 2,617 - 29 - - 1,968 - 44 911 1 Supplies 55 - 2 49 29 2 - - 38 22 2 - - Depreciat ion 5,077 1,939 78 6,033 2,004 80 - - 6,094 2,095 72 132 - YoY 67.4% 8.3% -12.4% 18.8% 3.4% 2.6% - - 1.0% 4.5% -10.0% - - Taxes and dues 630 21 - 604 -88 - - 1 553 28 - 38 2 Other 997 1,668 37 727 1,018 55 - 2 819 950 39 968 11 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Full-year segment results are the totals of quarterly results. Note: Depreciation for the US and Asia-Pacific segments include depreciation of identified intangible assets at the time of acquisition of TradeStation Group and Monex Boom Securities Group.

Net operating revenue: breakdown by region and by business

Source: Company’s earnings briefing materials

Consolidated earnings Revenue The company’s operating revenue consists of commissions (mainly brokerage commissions), trading income (mainly from forex trading), and financial income. All three fluctuate differently, but generally vary in the short term in response to stock market trends in Japan and the US and forex rate movements.

Operating revenue after deducting financial expenses and cost of revenue corresponds to the net operating revenue for brokerages that adopt the Japanese GAAP standard. (As such, this report uses net operating revenue when referring to the company’s earnings.)

Profits Expenses are mainly SG&A and financial expenses. SG&A expenses are mainly fixed expenses with the exception of transaction- related expenses. Consequently, the marginal profit ratio is high and profits are easily affected by fluctuations in revenue.

Profits outlined in the company’s income statement comprise pre-tax profit, profit, and profit attributable to owners of the parent. The term operating profit equivalent is also used in materials supplementing earnings releases.

Operating profit equivalent: net operating revenue minus SG&A expenses; corresponds to operating profit under J-GAAP ▷

50/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Pre-tax profit: (operating profit equivalent + other financial income + other income) – (other financial expenses + other ▷ expenses); corresponds to pre-tax profit under J-GAAP.  Other financial income mainly includes interests received and gains on sale of investment securities.  Other financial expenses mainly include interests paid. Profit: pre-tax profit minus corporate income tax expenses; corresponds to net income under J-GAAP ▷ Profit attributable to owners of the parent: profit minus profit attributable to non-controlling interests; corresponds to net income ▷ attributable to parent company shareholders

Segment information Monex Group has five segments: Japan, US, Asia-Pacific, Crypto Asset, and Investment. The Japan and US segments generate the majority of operating revenue and profits. Profits are also affected significantly by gains/losses in the Crypto Asset segment.

In FY03/19, the Japan segment accounted for 53.2% of net operating revenue (57.9% in FY03/18), the US segment 40.0% ▷ (34.7%), the Asia-Pacific segment 1.7% (1.9%), the Crypto Asset segment 4.3% (0.0%), and the Investment segment 0.9% (5.5%). Pre-tax profit was JPY1.2bn for Japan (JPY5.8bn in FY03/18), JPY2.0bn for US (JPY281mn), and JPY382mn for Investment ▷ (JPY2.8bn). The Asia-Pacific segment posted a pre-tax loss of JPY48mn (pre-tax loss of JPY225mn in FY03/18) and the Crypto Asset

segment a pre-tax loss of JPY1.7bn.

51/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Japan segment

Monex, Inc. is the core of the Japan segment. Until FY03/15, the difference in operating revenues of the Japan segment and Monex, Inc. was mainly in trading income and financial income, with the difference in trading income coming from Monex FX. For financial income, the difference stems from the difference between IFRS and Japanese GAAP in methods of offsetting earnings and expenses; financial income figures of the Japan segment and Monex, Inc. are on the same level.

SG&A expenses and operating profit equivalents differ between the Japan segment and Monex, Inc., due to management consulting fees Monex, Inc., pays to the parent company, but this falls out when consolidated results are calculated and intra- group transactions are eliminated.

Income statement of the Japan segment

FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 (JPYmn) Operating revenue 24,151 38,311 32,678 34,178 28,775 31,205 27,729 YoY 12.0% 58.6% -14.7% 4.6% -15.8% 8.4% -11.1% Commissions received 12,980 23,940 19,034 19,430 15,267 16,968 13,301 YoY 18.8% 84.4% -20.5% 2.1% -21.4% 11.1% -21.6% Brokerage 10,298 20,549 15,773 16,033 12,547 14,082 10,650 YoY 24.2% 99.5% -23.2% 1.6% -21.7% 12.2% -24.4% Equity and ETF 9,483 19,667 15,184 15,305 12,124 13,733 10,339 Futures and options 632 752 568 727 421 349 311 OSE FX 185 130 21 - - - - Cryptocurrency ------Underw rit ing and dist ribut ion 47 120 99 153 136 172 70 Subscript ion and dist ribut ion 494 917 709 791 443 459 355 Ot her commissions 2,141 2,353 2,451 2,453 2,142 2,255 2,226 YoY 0 0.9% 9.9% 4.2% 0.1% -12.7% 5.3% -1.3% FX fees (OTC retail FX) 72 147 114 117 116 79 69 Administrative and transfer fees for margin trading - - - 202 367 355 343 Agent fee for investment trust trading 1,273 1,518 1,702 1,737 1,539 1,692 1,677 Other 795 688 636 395 120 129 136 Net t rading income 5,170 5,747 4,831 5,675 4,498 3,865 4,535 YoY 0 1.3% 11.2% -15.9% 17.5% -20.7% -14.1% 17.3% Financial income 5,878 8,486 8,670 8,860 8,803 9,640 9,808 YoY 8.8% 44.4% 2.2% 2.2% -0.6% 9.5% 1.7% Other operating revenue 122 139 144 214 207 732 86 Financial expenses 878 1,851 2,269 2,355 2,083 2,177 1,990 Net operating revenue 23,273 36,459 30,410 31,823 26,693 29,028 25,739 YoY 13.1% 56.7% -16.6% 4.6% -16.1% 8.7% -11.3% SG&A expenses 16,509 19,173 20,004 23,320 25,051 23,420 23,013 YoY -1.4% 16.1% 4.3% 16.6% 7.4% -6.5% -1.7% % of net operating revenue 70.9% 52.6% 65.8% 73.3% 93.8% 80.7% 89.4% Operat ing profit equivalent 6,763 17,287 10,406 8,502 1,643 5,608 2,726 YoY 76.1% 155.6% -39.8% -18.3% -80.7% 241.3% -51.4% % of net operating revenue 29.1% 47.4% 34.2% 26.7% 6.2% 19.3% 10.6% Other revenue 6,640 2,454 577 3,077 5,470 847 1,944 Other expenses 515 245 486 5,691 5,345 656 3,423 Pre-tax profit 12,888 19,497 10,498 5,887 1,768 5,799 1,247 YoY 253.5% 51.3% -46.2% -43.9% -70.0% 228.0% -78.5% % of net operating revenue 55.4% 53.5% 34.5% 18.5% 6.6% 20.0% 4.8% Profit 8,501 12,022 6,755 3,854 866 3,807 1,131 % of net operating revenue 395.1% 41.4% -43.8% -42.9% -77.5% 339.6% -70.3% Profit attributable to owners of the parent 8,478 12,020 6,755 3,892 1,004 3,958 1,284 YoY 413.2% 41.8% -43.8% -42.4% -74.2% 294.2% -67.6% % of net operating revenue 36.4% 33.0% 22.2% 12.2% 3.8% 13.6% 5.0% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

52/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Income statement of Monex, Inc. FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 (JPYmn) Operating revenue 22,894 37,513 32,930 35,078 29,630 32,454 29,014 YoY 13.8% 63.9% -12.2% 6.5% -15.5% 9.5% -10.6% Commissions received 12,719 23,913 19,041 19,478 15,379 17,087 13,369 YoY 21.1% 88.0% -20.4% 2.3% -21.0% 11.1% -21.8% % of net operating revenue 61.5% 69.0% 63.9% 61.1% 58.0% 58.1% 51.3% Brokerage 10,349 20,655 15,889 16,149 12,683 14,238 10,778 YoY 24.0% 99.6% -23.1% 1.6% -21.5% 12.3% -24.3% Equity and ETF 9,535 19,772 15,300 15,421 12,261 13,889 10,467 Futures and options 631 751 567 727 422 348 310 OSE FX 182 130 21 0 0 0 0 Underwriting and distribution 47 120 99 152 136 171 69 Subscription and distribution 493 917 707 791 442 458 355 Other commissions 1,828 2,220 2,344 2,384 2,117 2,218 2,165 YoY 11.3% 21.4% 5.6% 1.7% -11.2% 4.8% -2.4% Net trading income 3,122 4,035 3,797 5,675 4,499 3,862 4,530 YoY 22.0% 29.2% -5.9% 49.5% -20.7% -14.2% 17.3% % of net operating revenue 15.1% 11.6% 12.7% 17.8% 17.0% 13.1% 17.4% Financial income 6,896 9,272 9,946 9,733 9,558 10,780 11,018 YoY 0.0% 34.5% 7.3% -2.1% -1.8% 12.8% 2.2% % of net operating revenue 33.3% 26.8% 33.4% 30.5% 36.0% 36.7% 42.3% Other operating revenue 156 292 145 190 192 723 96 Financial expenses 2,215 2,872 3,114 3,191 3,097 3,060 2,969 Net operating revenue 20,678 34,640 29,816 31,886 26,532 29,394 26,045 YoY 16.8% 67.5% -13.9% 6.9% -16.8% 10.8% -11.4% SG&A expenses 15,801 20,367 21,088 24,428 25,738 24,024 23,282 YoY 0.8% 28.9% 3.5% 15.8% 5.4% -6.7% -3.1% % of net operating revenue 76.4% 58.8% 70.7% 76.6% 97.0% 81.7% 89.4% Operating profit 4,877 14,273 8,727 7,457 794 5,369 2,762 YoY 141.3% 192.7% -38.9% -14.6% -89.4% 576.2% -48.6% % of net operating revenue 23.6% 41.2% 29.3% 23.4% 3.0% 18.3% 10.6% Recurring profit 4,984 14,333 8,842 7,505 809 5,449 2,796 YoY 134.2% 187.6% -38.3% -15.1% -89.2% 573.5% -48.7% Extraordinary gains 5,252 - - - 1,909 61 36 Extraordinary losses 159 549 458 2,599 1,240 81 1,869 Pre-tax profit 10,007 13,784 8,384 4,905 1,478 5,429 964 YoY 423.7% 37.7% -39.2% -41.5% -69.9% 267.3% -82.2% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

Difference between the Japan segment and Monex, Inc. FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 (JPYmn) Operating revenue 1,257 798 -252 -900 -855 -1,249 -1,285 Commissions received 261 27 -7 -48 -112 -119 -68 Net t rading income 2,048 1,712 1,034 - -1 3 5 Financial income -1,018 -786 -1,276 -873 -755 -1,140 -1,210 Other operating income -34 -153 -1 24 15 9 -10 Financial expenses -1,337 -1,021 -845 -836 -1,014 -883 -979 Net operating revenue 2,595 1,819 594 -63 161 -366 -306 SG&A expenses 708 -1,194 -1,084 -1,108 -687 -604 -269 Operat ing profit equivalent 1,886 3,014 1,679 1,045 849 239 -36 Pre-tax profit 2,881 5,713 2,114 982 290 370 283 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

Net operating revenue

Net operating revenue refers to operating revenue after deducting financial expenses and cost of revenue. The Japan segment’s net operating revenue breaks down into commissions (51.7% share in FY03/19), trading income (17.6%), net financial income (30.4%), and other operating revenue (0.3%).

53/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Commissions (51.7% of Japan segment’s net operating revenue in FY03/19) Commissions break down into brokerage commissions (80.1% of total commissions of Japan segment in FY03/19), fees for securities underwriting and offering (0.5%), handling fees for invitation for subscription and offering (2.7%), and other fees and commissions (16.7%).

Brokerage commissions Brokerage companies receive brokerage commissions when a customer buys or sells stocks, ETFs, futures, or options. More than 90% of all commissions Monex, Inc. receives are brokerage commissions for stocks and ETFs. Less than 10% are from futures and options trading.

Brokerage commissions for trading stocks and ETFs = Equity trading value x brokerage commission rate

In FY03/19, the equity trading value at Monex, Inc. was JPY14.2tn (JPY16.8tn in FY03/18) and the brokerage commission rate was 0.074% (0.083%), equaling a brokerage commission on stocks and ETFs of JPY10.5bn (JPY13.9bn).

Trends in equity trading value and brokerage commission rate FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 Trading value on TSE and NSE (JPYtn) 735 1,414 1,337 1,634 1,417 1,645 1,574 YoY 16.5% 92.4% -5.4% 22.3% -13.3% 16.1% -4.3% Individuals trading value on TSE and NSE (JPYtn) 155 385 314 331 266 317 274 YoY 38.5% 148.0% -18.5% 5.6% -19.8% 19.4% -13.5% Individuals trading value as % of total 21.1% 27.2% 23.5% 20.3% 18.8% 19.3% 17.4% Monex equity trading value (JPYtn) 11.0 23.9 17.1 17.1 13.3 16.8 14.2 YoY 117.1% -28.3% -0.2% -21.9% 25.9% -15.5% Monex as % of individuals trading value on TSE and NSE 7.1% 6.2% 5.5% 5.1% 5.0% 5.3% 5.2% Brokerage commissions for equity and ETF in Japan (JPYmn) 9,483 19,667 15,184 15,305 12,124 13,733 10,339 YoY 30.3% 107.4% -22.8% 0.8% -20.8% 13.3% -24.7% Source: Shared Research based on company data Equity trading value at the Tokyo and Nagoya exchanges includes ETFs and REITs

Equity trading value (Monex, Inc.) The company’s equity trading value is calculated from cumulative equity trading value at the Tokyo and Nagoya stock exchanges, its ratio of trades by retail investors, and the company’s share of equity trading value by retail investors.]

Equity trading value of Monex, Inc. = Equity trading value at the Tokyo and Nagoya stock exchanges x ratio of trades by retail investors x Monex, Inc.’s share of equity trading value by retail investors

In FY03/19, equity trading value at the Tokyo and Nagoya stock exchanges was JPY1,574tn (JPY1,645tn in FY03/18). The ratio of retail investors was 17.4% (19.3%) and the company’s share of equity trading value by retail investors was 5.2% (5.3%). The equity trading value at Monex, Inc. was JPY14.2tn (JPY16.8tn).

Equity trading value at the Tokyo and Nagoya stock exchanges is affected by the economy, interest rates, and stock market movements. The share of retail investors varies according to changes in investors’ profit/loss standings and investor confidence (see the Market and value section for details). Monex’s share of retail equity trading value depends on the services provided and competitors’ performance and offerings. In the past, the company’s share of equity trading value increased temporarily when merging with Nikko Beans, ORIX Securities, and Sony Bank Securities, but fell each time post-merger.

Brokerage commissions Brokerage commissions are determined by the company’s commission pricing structure. The company has similar commission rate levels regardless of whether a customer chooses per-trade or fixed daily commission, and the rate does not vary much regardless of the size of the trade (trading value).

54/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

The average commission rate declined from FY03/18 to FY03/19. This was mainly due to Monex, Inc. lowering its commission rates on margin trades (fees per trade) in November 2017 as follows: from JPY100 to JPY95 for transactions of JPY100,000 or less; from JPY450 to JPY190 for transactions of JPY500,000 or less; from JPY1,500 to JPY355 for transactions of JPY1mn or less; and from JPY3,000 to JPY800 for transactions of JPY2mn or less. Shared Research estimates this fee schedule revision pushed down the average commission rate on margin trades from 0.12% previously to 0.05%.

Monex, Inc.’s commission rate is around 0.04% for TradeStation, the tool for active traders of Japanese stocks launched in March 2016. The company’s commission rate may drop if the number and trading value of TradeStation accounts increase.

Trading income (17.6% of Japan segment’s net operating revenue in FY03/19) The company mainly earns trading income from forex trading. Forex trades are over-the-counter trades between the broker and the customer. When a customer places a trading order at the rate offered, the broker takes the opposite side of the trade, leading to market volatility risk. The broker mitigates the risk of sharp swings in the market that would lead to large losses by placing a cover trade with a partner financial institution (a bank or interbank market participant that acts as the counterparty).

In a cover trade, the difference between the spread offered by the counterparty to the broker and the spread offered by the broker to its customer becomes the broker’s trading income. Meanwhile, when a broker receives many simultaneous buy-and- sell orders from customers, the orders offset each other by being married in-house. The offsetting portion is neutral to market movement and cover trade is necessary only for the orders that could not be married. For offsetting trades, the spread between the bid and ask prices shown to the broker’s customers generate the broker’s trading income.

Trading income = forex trading value x profit ratio (ratio of earnings to transaction value)

In FY03/19, Monex, Inc.’s forex trading value was JPY39.7tn (+27.7% YoY), the profit ratio was 0.009%, leading to forex income (including forex trading income, swap income, and commissions) of JPY3.6bn (+22.2% YoY).

Forex trading income indicators FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 Trading value on FX (JPYtn) 2,208 4,196 4,698 5,525 4,939 4,179 3,740 YoY 27.5% 90.0% 12.0% 17.6% -10.6% -15.4% -10.5% Monex FX trading value (JPYtn) 26.3 36.3 35.8 39.8 34.9 31.1 39.7 YoY -0.5% 38.2% -1.5% 11.4% -12.4% -10.9% 27.7% Monex as % of total 1.2% 0.9% 0.8% 0.7% 0.7% 0.7% 1.1% Net t rading income (excl. sw ap income; JPY mn) 4,159 4,519 3,627 4,528 3,342 2,941 3,595 YoY -6.5% 8.7% -19.7% 24.8% -26.2% - 22.2% Margin 0.016% 0.012% 0.010% 0.011% 0.010% 0.009% 0.009% Source: Shared Research based on The Financial Futures Association of Japan and company data Net trading income excludes swap income until FY03/17 but includes swap income thereafter.

Trading value increases when market volatility is high and decreases when it is low. Monex, Inc.’s share in the forex trading market had trended downward at levels below 1%. However, as a result of reducing spreads for all currency pairs at FX Plus in November 2018, Monex, Inc.’s share rose to 1.1% (+0.4pp YoY).

Net financial income (30.4% of Japan segment’s net operating revenue in FY03/19) Net financial income is the difference between financial income and financial expenses (net gains/losses from margin trading, stock lending/borrowing, and interest). However, the company only discloses consolidated figures and does not release a breakdown by segment. Shared Research understands that margin trading occurs mainly in the Japan segment, whereas stock lending transactions and the investment of customer assets in custody happen mainly in the US segment. We thus break down net financial income in Japan into revenues from consolidated margin trading, stock lending transactions, and others. In the US the breakdown is stock lending transactions, most of interest income, and others.

55/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Net financial income and related indicators (JPYmn) FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 Monex, Inc. margin trading balance (year-end; JPYbn) 170.2 189.9 197.9 163.5 166.0 205.3 156.9 Long position (JPYbn) 145.3 176.2 165.6 145.6 138.5 188.8 127.7 Short position (JPYbn) 24.9 13.7 32.3 17.8 27.6 16.4 29.2 Monex, Inc. margin trading balance (average; JPYbn) 118.9 194.7 183.5 186.9 152.0 177.9 179.3 Financial income: Japan 5,878 8,486 8,670 8,860 8,803 9,640 9,808 Financial income: Monex, Inc. 6,896 9,272 9,946 9,733 9,558 10,780 11,018 Cons. income from margin trading - - 5,830 5,973 4,837 5,455 5,619 Cons. income from securities lending transactions - - 6,119 4,610 4,392 6,136 6,565 Financial expenses: Japan 878 1,851 2,269 2,355 2,083 2,177 1,990 Financial expenses: Monex, Inc. 2,215 2,872 3,114 3,191 3,097 3,060 2,969 Cons. expenses in margin trading - - 464 474 527 625 422 Cons. expenses in securities lending transactions - - 3,747 2,630 2,113 2,568 3,086 Net financial income: Japan 5,000 6,635 6,401 6,505 6,720 7,463 7,818 Net financial income: Monex, Inc. 4,681 6,400 6,832 6,542 6,461 7,720 8,049 Cons. income from margin trading (net) - - 5,366 5,499 4,310 4,830 5,197 Cons. income from securities lending transactions (net) - - 2,372 1,980 2,279 3,568 3,479 Source: Shared Research based on company data

Financial income Financial income consists of income from margin trading and stock lending, and interest received. In the Japan segment, financial income is mainly income from margin trading and stock lending.

Income from margin trading Income from margin trading comprises interest on margin transactions and stock lending fees, calculated as the margin trading balance x the rates of interest and stock-lending (net interest ratio).

Income from margin trading = Average margin trading balance (long + short positions) x net interest ratio (weighted average of interest rate on margin transactions and stock lending fees) = Average margin trading balance (long positions) x interest rate on margin transactions + Average margin trading balance (short positions) x stock lending fees

In FY03/18, the average margin trading balance (long + short positions) was JPY177.9bn, with long positions totaling JPY188.8bn and short positions totaling JPY16.4bn. Income from margin trading was JPY5.4bn and the net interest ratio was 3.1%.

Monex Group publishes in its monthly disclosures the margin trading balance (long and short positions) of Monex, Inc. It is also possible to calculate from the balance sheet published in the “subsidiaries’ quarterly earnings results (Monex, Inc.)” (Japanese only) the values broken down into long position balance (under “loans on margin transactions”) and short position balance (under “cash collateral pledged for securities borrowed on margin transaction”).

Based on the margin trading balance at end FY03/18, assuming that the ratio of long and short positions was 80/20, the weighted average of the interest rate (2.80%) and stock lending rate (1.15%) on margin transactions is 2.5%. The above net interest ratio (at 3.2%) exceeds this figure. We think this is due to brokerages receiving one day’s interest on day trades, although the trades are not reflected in the balance.

The margin trading balance, like equity trading value, fluctuates according to stock market movements. Investors have more scope for buying in a bull market, when the margin trading balance tends to rise, and vice versa in a bear market.

The interest rate on a long position is 2.80% for standardized margin transactions and 3.47% for negotiable margin transactions, with standardized transactions accounting for most of the margin trading balance. The stock lending rate for standardized margin trading is 1.15% and 1.50% for negotiable margin trading.

56/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Income from stock lending Stock lending services allow a brokerage company to borrow stocks held in customer accounts and lend them to other investors. Brokerages pay customers an interest fee for borrowing stocks and receive a fee by lending them to institutional investors in the stock lending market.

Stock lending income = the stock lending balance (securities loaned under a contract) x the stock lending fee

The stock lending balance fluctuates according to demand among borrowers such as hedge funds. For example, if the prices of stocks associated with a specific theme increase sharply, the stock lending balance is likely to go up as demand increases to borrow and sell certain individual stocks.

Stock lending fees vary. Stocks that are in high demand for the lending service incur higher fees. Fees can also vary depending on stock lending market demand.

Institutional investors lend and borrow stocks in the stock lending market. Brokerages act as intermediaries, borrowing stocks from customers, which are loaned to foreign brokerages and hedge funds. Borrowers can sell the shares on the stock market or gain rights to dividends and voting rights as a result of the shares being transferred to their name. Borrowers pay a fee (stock lending rate) to lenders. When the stock lending transaction comes to an end, the borrower must return the same number of shares to the lender.

Financial expenses Financial expenses are margin trading expenses, stock lending fees, and interest paid. In the Japan segment, these are mainly margin trading expenses and stock lending fees.

Margin trading expenses Margin trading expenses are premiums paid or interest and stock lending fees paid to securities finance companies incurred by margin transactions and stock lending transactions. Margin trading expenses are trending at around 10% of income from margin trading. As of May 2019, Japan Security Finance Co. charges an interest rate of 0.6% for stock lending transactions and a stock lending fee (i.e., lending fee on stocks that the securities finance company borrows from brokerages) of 0.4%.

Stock lending fees Brokerages pay stock lending fees to customers from whom they borrow shares. These fees are trending at around 40–60% of income from stock lending.

SG&A expenses Mainly fixed expenses in the Japan segment SG&A expenses are mainly trading-related expenses (22.3% of SG&A expenses in FY03/19), personnel expenses (17.6%), and system-related expenses (54.1%). System-related expenses break down into real estate-related (19.0%), administrative (8.7%), and depreciation (26.5%).

Variable SG&A expenses consist of fees and commissions, stock exchange fees, communication and transport expenses, and information expenses related to trading. We believe most other expenses are fixed. Fixed expenses of the Japan segment had been trending higher since FY03/15 due mainly to the increase in system-related expenses stemming from the development of a new backbone brokerage system. System-related expenses came down in FY03/18, however, as the company completed its transition to the new backbone system.

57/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

SG&A expenses of Japan segment (JPYmn) FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19

SG&A expenses 16,509 19,173 20,004 23,320 25,050 23,420 23,013 YoY -1.4% 16.1% 4.3% 16.6% 7.4% -6.5% -1.7% T rading-relat ed 4,851 6,147 6,200 6,356 5,323 5,787 5,135 YoY 2.2% 26.7% 0.9% 2.5% -16.3% 8.7% -11.3% Commissions paid 897 1,190 1,300 1,323 1,230 1,398 1,414 Stock exchange and association fees 735 1,238 962 928 694 797 645 Telecom, transportation, and information 2,195 2,427 2,293 2,134 1,780 1,668 1,731 Advertising expenses 957 1,139 1,489 1,812 1,506 1,784 1,212 Other 67 152 158 159 113 140 133 Personnel 3,515 3,680 3,525 4,047 4,206 4,028 4,046 YoY 11.1% 4.7% -4.2% 14.8% 3.9% -4.2% 0.4% Real estate-related 1,455 1,562 2,029 2,672 3,141 3,578 4,361 YoY -8.5% 7.4% 29.9% 31.7% 17.6% 13.9% 21.9% Real estate 634 409 406 404 499 659 538 Furniture and fixtures 821 1,154 1,623 2,268 2,641 2,919 3,823 Office and supplies 4,740 5,377 5,357 5,849 5,677 2,666 2,006 YoY -2.6% 13.4% -0.4% 9.2% -2.9% -53.0% -24.8% Outsourcing 4,688 5,305 5,304 5,782 5,622 2,617 1,968 Office supplies 52 72 53 67 55 49 38 Depreciat ion 1,270 1,531 1,985 3,032 5,077 6,033 6,094 YoY 7.5% 20.6% 29.7% 52.7% 67.4% 18.8% 1.0% Taxes and dues 235 331 309 471 630 604 553 Other 443 544 597 893 997 725 819 Source: Shared Research based on company data

Variable expenses related to transactions Transaction-related expenses consist of fees and commissions paid, stock exchange fees, communication and transport costs, information expenses, and others. Roughly 60% of fees and commissions paid and stock exchange fees are linked to equity trading value. The remaining portion of fees and commissions not linked to equity trading value, and communications, transport, and information expenses are mostly linked to the number of accounts.

Fees and commissions: These are fees paid to banks, Japan Securities Clearing Corporation (JSCC), and the ▷ Japan Securities Depository Center, Inc., for delivery and settlement of trades at stock exchanges. The total amount is linked to equity trading value and number of accounts. Stock exchange fees: Monthly transaction fees paid to the stock exchange by brokerages according to equity trading value. ▷ Communication, transportation, and information expenses: Includes fees paid to QUICK Corp. for stock price information ▷ and Tokyo Stock Exchange system usage fees.

Personnel expenses Personnel expenses are determined by the number of employees and average personnel expense per employee. The number of employees in the Japan Segment went up in FY03/16, decreased in FY03/17 and FY03/18, but went up again in FY03/19 to 368 (+46 YoY). The average personnel expense per employee (personnel expenses / average of the number of employees at the beginning and end of the year) was trending higher from FY03/16 through FY03/18, but was kept down in FY03/19 and totaled JPY11.7mn (-5.4% YoY).

Personnel expenses and employees of Japan segment (JPYmn) FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 Personnel expenses 3,515 3,680 3,525 4,047 4,206 4,028 4,046 YoY 11.1% 4.7% -4.2% 14.8% 3.9% -4.2% 0.4% % of net operating revenue 15.1% 10.1% 11.6% 12.7% 15.8% 13.9% 15.7% Number of employees 313 305 323 355 328 322 368 YoY 2.6% -2.6% 5.9% 9.9% -7.6% -1.8% 14.3% Personnel expenses per employee 11.4 11.9 11.2 11.9 12.3 12.4 11.7 YoY 8.2% 4.7% -5.7% 6.3% 3.2% 0.6% -5.4% Operating revenue per employee 78.2 124.0 104.1 100.8 84.3 96.0 80.4 YoY 9.1% 58.6% -16.1% -3.1% -16.4% 14.0% -16.3% Source: Shared Research based on company data *Personnel expenses per employee is calculated as personnel expenses / total number of employees (average of figures at beginning and end of FY)

58/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

System-related expenses System-related expenses are categorized according to purpose and type. Categories are real estate-related, outsourcing, and depreciation. System-related expenses of Japan segment (JPYmn) FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 System-related expenses 7,465 8,470 9,371 11,553 13,895 12,277 12,461 YoY -2.3% 13.5% 10.6% 23.3% 20.3% -11.6% 1.5% Real estate-related 1,455 1,562 2,029 2,672 3,141 3,578 4,361 YoY -8.5% 7.4% 29.9% 31.7% 17.6% 13.9% 21.9% Office and supplies 4,740 5,377 5,357 5,849 5,677 2,666 2,006 YoY -2.6% 13.4% -0.4% 9.2% -2.9% -53.0% -24.8% Depreciat ion 1,270 1,531 1,985 3,032 5,077 6,033 6,094 YoY 7.5% 20.6% 29.7% 52.7% 67.4% 18.8% 1.0% Source: Shared Research based on company data

Real estate-related expenses Expenses related to real estate, furniture, and equipment. The majority of equipment expense is related to server management.

Outsourcing expenses are mainly for system management and maintenance Business outsourcing expenses are mainly related to system management and maintenance.

Depreciation Most depreciation expenses are for software. Software is treated as assets written off over a five-year period.

System-related expenses in the Japan segment had been rising since FY03/16 in line with the introduction of the Japanese equities version of the TradeStation platform and development of a new backbone brokerage system. System-related expenses at Monex, Inc. were relatively high, coming after SBI Securities in FY03/17, and system-related expenses per account and per contract were both high (see the Competition section for details).

The end of parallel operation of the new and old IT systems reduced fixed expenses in FY03/18, mainly on lower system-related expenses (administrative costs of old system) and personnel expenses.

59/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

US segment

TradeStation Securities, Inc. is the core of the US segment. Income statement of the US segment (JPY basis) FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 (JPYmn) Operating revenue 11,726 16,062 18,146 22,912 18,684 20,002 22,798 YoY 35.7% 37.0% 13.0% 26.3% -18.5% 7.1% 14.0% Commissions received 7,173 9,298 10,791 12,406 10,858 11,858 12,014 YoY 23.5% 29.6% 16.1% 15.0% -12.5% 9.2% 1.3% Brokerage 5,165 6,720 7,786 8,965 7,371 8,091 8,573 YoY 15.6% 30.1% 15.9% 15.1% -17.8% 9.8% 6.0% Equity and ETF 1,608 2,043 2,136 2,168 1,845 1,874 2,033 Futures and options 3,557 4,676 5,648 6,794 5,526 6,218 6,540 Underw rit ing and dist ribut ion ------Subscript ion and dist ribut ion ------Ot her commissions 2,008 2,577 3,006 3,441 3,487 3,767 3,441 YoY 49.7% 28.3% 16.6% 14.5% 1.4% 8.0% -8.7% FX fees (OTC retail FX) ------Administrative and transfer fees for margin trading ------Agent fee for investment trust trading ------Others 2,008 2,577 3,006 3,441 3,488 3,767 3,441 Net t rading income 1,804 2,264 1,411 995 - - - YoY 64.3% 25.5% -37.7% -29.5% - - - Financial income 2,410 4,168 5,343 5,736 5,493 6,946 9,221 YoY 67.9% 72.9% 28.2% 7.4% -4.3% 26.5% 32.8% Other operating revenue 340 331 530 1,381 1,242 1,141 1,282 Financial expenses 1,593 2,818 3,496 2,269 2,115 2,535 3,214 Net operating revenue 10,134 13,245 14,584 18,541 15,616 17,417 19,338 YoY 27.5% 30.7% 10.1% 27.1% -15.8% 11.5% 11.0% SG&A expenses 13,423 15,291 16,701 18,392 15,858 16,487 17,250 YoY 51.1% 13.9% 9.2% 10.1% -13.8% 4.0% 4.6% % of operating revenue 132.5% 115.4% 114.5% 99.2% 101.5% 94.7% 89.2% Operat ing profit equivalent -3,289 -2,047 -2,116 149 -242 931 2,088 YoY ------124.3% % of operating revenue - - - 0.8% - 5.3% 10.8% Other revenue 141 1,130 113 51 54 2 - Other expenses 2,627 1,473 2,336 726 269 651 111 Pre-tax profit -5,774 -2,388 -4,339 -525 -457 281 1,978 YoY ------603.9% % of net operating revenue - - - - - 1.6% 10.2% Profit -4,488 -1,450 -3,174 -152 -497 1,274 1,439 YoY ------13.0% Profit attributable to owners of the parent -4,488 -1,450 -3,174 -152 -497 1,274 1,439 YoY ------13.0% % of net operating revenue - - - - - 7.3% 7.4% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

60/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Income statement of the US segment (USD basis)

FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 (USD'000) Operating revenue 141,014 160,793 165,898 190,739 171,883 180,593 205,863 YoY 14.0% 3.2% 15.0% -9.9% 5.1% 14.0% Commissions received 86,263 93,086 98,040 103,273 99,886 107,067 108,485 YoY 7.9% 5.3% 5.3% -3.3% 7.2% 1.3% Brokerage 62,115 67,284 70,731 74,622 67,808 73,056 77,410 YoY 8.3% 5.1% 5.5% -9.1% 7.7% 6.0% Equity and ETF 19,339 20,462 19,407 18,058 16,971 16,917 18,358 Futures and options 42,775 46,823 51,325 56,564 50,836 56,139 59,051 Ot her commissions 24,148 25,802 27,309 28,651 32,078 34,011 31,075 YoY 6.8% 5.8% 4.9% 12.0% 6.0% -8.6% Net t rading income 21,693 22,659 12,818 8,290 - - - Financial income 28,975 41,739 48,542 47,756 50,531 62,713 83,264 YoY 44.1% 16.3% -1.6% 5.8% 24.1% 32.8% Sales revenue - - 1,250 19,924 10,036 506 2,544 Other operating revenue 4,084 3,308 5,245 11,498 11,429 10,306 11,572 Financial expenses 19,153 28,213 31,760 18,885 19,459 22,892 29,025 Cost of revenue - - 1,148 17,500 8,765 439 2,216 Net operating revenue 121,861 132,580 132,990 154,353 143,661 157,260 174,621 YoY 8.8% 0.3% 16.1% -6.9% 9.5% 11.0% SG&A expenses 161,415 153,070 151,753 153,108 145,885 148,858 155,763 YoY -5.2% -0.9% 0.9% -4.7% 2.0% 4.6% Operat ing profit equivalent -39,554 -20,489 -18,763 1,246 -2,225 8,402 18,858 Yoy - - - - - 124.4% Other revenue 1,412 11,317 - 425 506 21 1 Other expenses 31,297 14,740 20,802 6,043 2,485 5,882 1,001 Pre-tax profit -69,440 -23,910 -39,565 -4,372 -4,205 2,542 17,858 YoY - - - - - 602.5% Profit -53,961 -14,517 -28,964 -1,263 -4,573 11,504 12,996 YoY - - - - - 13.0% Profit attributable to owners of the parent -53,961 -14,517 -28,964 -1,263 -4,573 11,504 12,996 YoY - - - - - 13.0% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

Net operating revenue

Net operating revenue of the US segment breaks down into commissions (62.1% of segment net operating revenue in FY03/19), net financial income (31.1%), and other operating revenue (6.6%).

Commissions (62.1% share in FY03/19) Commissions are brokerage commissions on equities, futures, and options trading (71.4% of total segment commissions in FY03/19), and other fees and commissions (28.6%).

Brokerage commissions on equities, futures, and options trading Like the Japan segment, customers pay brokerage commissions to the brokerage when they trade equities, futures, and options.

Brokerage commissions on equities, futures, and options trading = DARTs x the number of business days x the unit price per transaction

In FY03/19, DARTs totaled 78,989 (-12.0% YoY), there were 250 business days, and the unit commission per contract was USD3.90 (Shared Research estimate based on company data).

DARTs at TradeStation Securities DARTs at TradeStation Securities strongly correlate with the VIX index (an indicator of the market’s outlook on volatility in the next 30 days), generally rising or falling with the index.

Unit price per transaction TradeStation Securities offers two main fee structures: a per-trade plan or fees based on the number of stocks traded. The majority of customers opt for per-trade commissions.

Other fees and commissions Other fees and commissions are platform fees and payments for order flow.

61/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Platform fees Customers are charged about USD100 in platform fees if they do not trade at least once a month using the TradeStation tool.

TradeStation Securities introduced a new fee plan for equity and options trading in March 2017. It now charges USD5.00 per equity trade and USD0.50 per contract plus USD5.00 per options trade. The company abolished platform fees for customers choosing the new fee structure. Platform fees should decline as more customers switch to the new pricing plan.

Payment for order flow Payment for order flow is revenue received for order flow provided to exchanges and market makers. TradeStation Securities receives payment for order flow by passing on orders that do not specify an exchange to market makers instead of exchanges. This revenue has been increasing since 2H FY03/17.

Market makers are intermediary firms that stand ready to buy/sell securities for a profitable price at all times. They offer their own bid-ask prices and transactions are executed between market makers that offer the best quotes. There is active participation of market makers in the US. Brokerages can receive a rebate from these market makers for passing on orders like limit orders that can create liquidity. A brokerage receiving an order that does not specify an exchange will check which party will provide the largest rebate before passing the order on to maximize revenue.

Net financial income (31.1% of net operating revenue of US segment in FY03/19) Net financial income is income from stock lending and investment returns from customer assets in custody (cash), with the latter accounting for around 70% of US segment net financial income in FY03/19.

Interest income from investing customer assets in custody According to the company, around 40% of assets in customer accounts at TradeStation Securities are cash, which totaled approximately JPY200bn in FY03/19. Interest income on assets in customer accounts is interest received by TradeStation Securities, which invests these assets (cash). As such, this income is affected by the balance of customer assets in custody (cash) and US short-term interest rates.

According to the company, TradeStation Securities’ interest income from funds invested exceeded USD30mn in FY03/08 and earlier, when US short-term interest rates were over 4%. Interest income from funds invested trended below USD1mn after US short-term rates dropped to under 1% in FY03/10, but turned up since FY03/16 as US short-term rates started to rise. The company explained that it used interest rate swaps until November 2018 to fix interest received on part of assets in customer accounts.

Assets under custody in the US segment Returns on investment of customer assets in custody and US short-term interest rates

Source: Company data Source: Company data Note: Net financial income excludes financial income from margin trades and stock lending transactions

62/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

SG&A expenses Personnel expenses take up a large share of SG&A in the US segment Main SG&A expenses are transaction-related expenses (35.5% of SG&A expenses in FY03/19), personnel expenses (40.3%), and system-related expenses (18.6%). System-related expenses break down into real-estate (6.3%), administrative (0.1%), and depreciation (12.1%). The US segment has a larger share of transaction-related expenses and personnel expenses, and lower share of system-related expenses, compared with the Japan segment.

SG&A expenses of US segment (JPY basis) FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 (JPYmn) SG&A expenses 13,423 15,291 16,701 18,392 15,858 16,487 17,250 YoY 51.1% 13.9% 9.2% 10.1% -13.8% 4.0% 4.6% T rading-relat ed 5,284 5,992 6,956 7,508 5,869 6,043 6,126 YoY 34.5% 13.4% 16.1% 7.9% -21.8% 3.0% 1.4% Commissions paid 2,894 3,533 3,910 4,082 2,964 2,842 3,129 Stock exchange and association fees 125 195 288 227 113 101 120 Telecom, transportation, and information 1,271 1,324 1,698 2,164 1,801 1,773 1,482 Advertising expenses 992 941 1,060 1,035 990 1,231 1,264 Other - - - - - 97 131 Personnel 4,763 5,586 5,639 6,296 5,912 6,469 6,944 YoY 70.7% 17.3% 0.9% 11.7% -6.1% 9.4% 7.3% Real estate-related 336 365 385 417 449 1,012 1,085 YoY 94.2% 8.6% 5.5% 8.3% 7.7% 125.4% 7.2% Real estate 322 340 360 352 381 374 353 Furniture and fixtures 15 25 26 65 65 638 732 Office and supplies - - - - 1 29 22 YoY ------24.1% Outsourcing - - - - 1 - - Supplies - - - - - 29 22 Depreciat ion 1,773 1,818 1,861 1,790 1,939 2,004 2,095 YoY 52.6% 2.5% 2.4% -3.8% 8.3% 3.4% 4.5% Taxes and dues 21 25 29 32 21 -88 28 Other 1,245 1,500 1,832 2,348 1,668 1,018 950 Source: Shared Research based on company data

SG&A expenses of US segment (USD basis)

FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 (USD'000) SG&A expenses 161,415 153,070 151,753 153,108 145,885 148,858 155,763 YoY -5.2% -0.9% 0.9% -4.7% 2.0% 4.6% T rading-relat ed 63,541 59,993 63,198 62,505 53,989 54,560 55,317 YoY -5.6% 5.3% -1.1% -13.6% 1.1% 1.4% Commissions paid 34,807 35,369 35,517 33,986 27,275 25,657 28,253 Stock exchange and association fees 1,496 1,954 2,615 1,883 1,043 909 1,087 Telecom, transportation, and informa 15,294 13,256 15,426 18,015 16,565 16,008 13,384 Advertising expenses 11,942 9,412 9,633 8,616 9,102 11,115 11,415 Other 4 4 6 6 3 872 1,179 Personnel 57,267 55,935 51,229 52,415 54,387 58,404 62,699 YoY -2.3% -8.4% 2.3% 3.8% 7.4% 7.4% Real estate-related 4,056 3,667 3,503 3,463 4,120 9,139 9,799 YoY -9.6% -4.5% -1.1% 19.0% 121.8% 7.2% Real estate 3,881 3,402 3,264 2,925 3,514 3,380 3,191 Furniture and fixtures 176 266 240 539 606 5,761 6,609 Office and supplies 10 7 11 6 7 265 199 YoY -30.0% 57.1% -45.5% 16.7% 3685.7% -24.9% Outsourcing 10 7 11 6 7 - - Supplies - - - - - 265 199 Depreciat ion 21,314 18,202 16,908 14,907 17,838 18,093 18,916 YoY -14.6% -7.1% -11.8% 19.7% 1.4% 4.5% Taxes and dues 260 254 255 266 201 -798 254 Other 14,963 15,009 16,648 19,543 15,346 9,195 8,581 Source: Shared Research based on company data

Variable expenses related to transactions Like the Japan segment, in the US segment variable transaction-related expenses consists of fees and commissions, stock exchange fees, communication and transportation costs, and information expenses, which are linked closely with the number of transactions. The total of these expenses on a per transaction basis comes to around USD2.00.

63/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

The ratio of transaction-related expenses to commissions is higher in the US segment than the Japan segment. In FY03/18, transaction-related expenses accounted for 38.6% of commissions in the Japan segment versus 51.0% in the US segment. Consequently, profit growth relative to the increase in commissions appears smaller than in the Japan segment.

Personnel expenses Personnel expenses account for a large share of SG&A expenses in the US segment because TradeStation Group has its own system development unit with a relatively large work force. In FY03/19, the US segment had 513 employees (40% more than the Japan segment), although net operating revenue was around 75% of the figure for the Japan segment.

Operating revenue per employee has trended at around JPY100mn in the Japan segment versus USD200,000–USD400,000 in the US segment (roughly a third to a half of the figure for Japan).

Personnel expenses and employee count of the US segment FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 Personnel (USD'000) 57,267 55,935 51,229 52,415 54,387 58,404 62,699 YoY - -2.3% -8.4% 2.3% 3.8% 7.4% 7.4% Personnel expenses as % of operating revenue 40.6% 34.8% 30.9% 27.5% 31.6% 32.3% 30.5% Number of employees 566 616 595 581 467 491 513 YoY 11.9% 8.8% -3.4% -2.4% -19.6% 5.1% 4.5% Personnel expenses per employee (USD) 106,841 94,645 84,606 89,141 103,792 121,929 124,898 YoY - -11.4% -10.6% 5.4% 16.4% 17.5% 2.4% Operating revenue per employee (USD'000) 263 272 274 324 328 377 410 YoY - 3.4% 0.7% 18.4% 1.1% 14.9% 8.8% Source: Shared Research based on company data Note: Personnel expenses per employee is personnel expenses / total number of employees (average of figures at beginning and end of FY).

System-related expenses System-related expenses are lower in the US segment than in the Japan segment because TradeStation Securities, Inc. develops its own trading systems instead of outsourcing. System-related expenses in the US segment in FY03/19 were JPY3.2bn, about a quarter of such expenses in Japan.

System-related expenses of US segment (USD'000) FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 System-related expenses 25,380 21,876 20,422 18,376 21,965 27,497 28,914 YoY - -13.8% -6.6% -10.0% 19.5% 25.2% 5.2% Real estate-related 4,056 3,667 3,503 3,463 4,120 9,139 9,799 YoY - -9.6% -4.5% -1.1% 19.0% 121.8% 7.2% Office and supplies 10 7 11 6 7 265 199 YoY - -30.0% 57.1% -45.5% 16.7% - -24.9% Depreciat ion 21,314 18,202 16,908 14,907 17,838 18,093 18,916 YoY - -14.6% -7.1% -11.8% 19.7% 1.4% 4.5% Source: Shared Research based on company data

64/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Strengths and weaknesses Strengths Customers who are willing to pay higher commission rates for value-added service: Monex’s peers have slashed ◤ commissions to attract active traders, and their earnings are dependent on the frequent trades of these customers. In contrast, commission rates are higher at Monex, Inc., the company’s core business, since it offers competitive trading tools, multiple trading order options, and expanded investment information content. Unlike its peers, the company’s main customer base is retail investors seeking long-term asset building. As such, despite the low commission strategy of its peers, we think that there is a low chance that the comp any will lose these customers to other online brokerages.

Owns highly acclaimed trading platform TradeStation: The TradeStation trading tool offers advanced features required ◤ by active traders such as real-time monitoring of registered stocks, screening, and backtesting. The product of joint development between the US-based TradeStation Group and Monex, Inc., TradeStation is highly rated by active traders and has won numerous awards, including achieving a 4.5-star rating in Barron’s best online brokers survey six years running. Monex, Inc. launched TradeStation for Japanese equities in March 2016, and we understand that it offers features not seen in platforms of its industry peers, including faster order speeds and the abovementioned monitoring, screening, and backtesting features.

Cost reduction and strengthened product offerings with proprietary IT system: The company transitioned to an in- ◤ house developed backbone brokerage system in January 2017. Compared with competitors that do not have in-house systems development capabilities, this makes it possible for the company to save on system-related costs when responding to regulatory change. Monex Group also has a track record of providing diverse products and services ahead of its competitors, such as hedge fund offerings and professional-class trading platforms for retail investors. Shared Research thinks that the company can develop and offer new products and services more efficiently and at a lower cost by harnessing this proprietary system.

Weaknesses

High cost structure: Monex Group launched the TradeStation platform at Monex, Inc. and migrated to an in-house ◤ developed backbone brokerage system during the period of the previous strategy (FY03/12 – FY03/17). Between FY03/12 (US segment profits/losses reflected for a ten-month period in FY03/12) and FY03/17, system-related expenses rose by JPY6.6bn and personnel expenses by JPY4.2bn, resulting in higher operating revenue but lower profits. The new backbone system was completed in FY03/18 and this lowered expenses, but the company’s system-related fees per account and per contract are still significantly higher than its peers (see the Competition section for details).

Late to win active users due to a product-driven approach: Monex Group’s strategy has been product-driven: to attract ◤ investors with a high level of financial literacy using a competitive trading system, an advanced lineup of investment trust products, and overseas trading. In particular, the company offers hedge funds to retail investors and has expanded its US equities trading service. It has, however, been reluctant to engage in commission price wars. Industry peers who did lower commissions have been able to win active traders, who generate relatively more operating revenue per account, and increase their market share of equity trading by retail investors. Monex, Inc. was late to win active traders, resulting in a decline in market share.

Limited revenue from active traders: Commission rates are high at Monex, Inc. and its core customers are long-term ◤ investors who do not trade frequently. For this reason, active traders’ contribution to operating revenue at Monex, Inc. is limited even though active traders make up around 60% of the overall equity trading value of retail investors in the market (based on JSDA’s survey on online trading dated September 30, 2018). In FY03/19, the average trading frequency of Monex, Inc. customers (calculated as equity trading value / assets under custody) was 3.4x and equity trading value per customer account (JPY7.9mn) was less than half the amount at rival online brokerages (see Competition section for details). Shared Research understands that active traders prefer margin trading because of the efficient cash turnover it offers. Because active

65/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

traders are few at Monex, Inc., the company’s margin trading balance has been the lowest among the top five online brokerages, with financial income per account in FY03/19 amounting to JPY4,498, the lowest among online rivals.

66/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Group companies

Monex Group (holding company) has 20 subsidiaries and seven equity-method companies.

Main consolidated subsidiaries are Monex, Inc., TradeStation Group, Inc., TradeStation Securities, Inc., TradeStation Technologies, Inc., Monex International Limited, and Monex Boom Securities Limited. Cryptocurrency exchange operator Coincheck, Inc. became a wholly owned subsidiary in April 2018.

Monex, Inc. (100%) Founded in May 1999, Monex, Inc. is the Group’s mainstay online brokerage company. It provides products and services including equities trading (Japanese and US stocks), investment trusts, forex trading, and stock lending to customers in Japan.

TradeStation Group, Inc. (100%) Established in January 2001, became a wholly owned subsidiary of Monex Group in June 2011. An intermediate holding company that owns TradeStation Securities and TradeStation Technologies.

TradeStation Securities, Inc. (100%) A US online brokerage established in September 1995, which provides equities, futures, and options trading services to active traders. The TradeStation trading platform has won multiple awards in the US for its outstanding real-time portfolio reporting and screening features.

TradeStation Technologies, Inc. (100%) Founded in September 1982, develops systems for TradeStation Securities.

Monex International Limited. (100%) Established in August 2010, became a wholly owned subsidiary of Monex Group in December 2010. It is an intermediate holding company that owns Monex Boom Securities Limited.

Monex Boom Securities Limited (100%) A Hong-Kong based online brokerage founded in March 1997 serving retail investors; the first of its kind in the Asia-Pacific region.

Coincheck, Inc. (100%) Founded in August 2012, Coincheck, Inc. is a cryptocurrency exchange operator. Coincheck was subject to a business improvement order from the Kanto Local Finance Bureau following the theft of cryptocurrency NEM that resulted from unauthorized access to its system in January 2018, opening the door for Monex Group to acquire all outstanding shares of Coincheck in April 2018, making it a wholly owned subsidiary.

67/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Market and value chain Changes in equity trading value and margin trading balance Equity trading value, equity trading value of retail investors, and margin trading balance in Japan have significant impact on revenue of Monex, Inc.

Equity trading value and stock price indices

Equity trading value at Tokyo and Nagoya stock markets and TOPIX

(JPYtn) 200 2,000 Equity trading value 180 1,800 TOPIX (right axis) 160 1,600

140 1,400

120 1,200

100 1,000

80 800

60 600

40 400

20 200

0 0 Apr 2009 Apr 2010 Apr 2011 Apr 2012 Apr 2013 Apr 2014 Apr 2015 Apr 2016 Apr 2017 Apr 2018

Source: Shared Research based on Japan Exchange Group Monthly Statistics Report

Equity trading value is determined by stock prices and the number of stocks traded, and is therefore closely linked with stock price indices. From April 2009 through March 2019, the correlation coefficient between the Tokyo Stock Price Index (TOPIX) and the equity trading value at Tokyo and Nagoya stock exchanges was 0.86, indicating a strong correlation.

Equity trading value and stock price indices (retail investors)

Equity trading value of retail investors at Tokyo and Nagoya stock markets and TOPIX

(JPYtn) 60.0 2,000

1,800 Equity trading value of retail investors 50.0 1,600 TOPIX (right axis) 1,400 40.0 1,200

30.0 1,000

800 20.0 600

400 10.0 200

0.0 0 Apr 2009 Apr 2010 Apr 2011 Apr 2012 Apr 2013 Apr 2014 Apr 2015 Apr 2016 Apr 2017 Apr 2018

Source: Shared Research based on Japan Exchange Group Monthly Statistics Report

In March 2019, foreign investors accounted for 59.5% of equity trading value, followed by domestic retail investors at 16.7%, and domestic companies at 7.2%.

Equity trading value of retail investors also moves largely in line with stock price indices, but tends to settle down once the indices exceed a certain mark. Looking at the movements from April 2009 through March 2019, the equity trading value of retail investors started to cool off around the time TOPIX hit the 1,200 mark in 2014, while TOPIX continued to trend upward. During

68/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

the same period, the correlation coefficient between TOPIX and the equity trading value of retail investors at Tokyo and Nagoya stock exchanges was 0.69, indicating a weaker correlation compared with overall equity trading value.

Margin trading balance and stock price indices

Margin trading balance and TOPIX

(JPYtn) 5.0 2,000

4.5 Margin trading balance 1,800

4.0 TOPIX (right axis) 1,600

3.5 1,400

3.0 1,200

2.5 1,000

2.0 800

1.5 600

1.0 400

0.5 200

0.0 0 Apr 2009 Apr 2010 Apr 2011 Apr 2012 Apr 2013 Apr 2014 Apr 2015 Apr 2016 Apr 2017 Apr 2018

Source: Shared Research based on Japan Exchange Group Monthly Statistics Report

Margin trading balance is also closely linked with stock price indices. From April 2009 through March 2019, the correlation coefficient between TOPIX and margin trading balance at Tokyo and Nagoya stock exchanges was 0.90, showing a strong correlation.

History of online brokerages The rise of online brokerages Online brokerage in Japan launched in 1998; growth through FY03/06 The first company to offer full-blown online brokerage services in Japan was Matsui Securities, which launched online trading service Netstock in May 1998.

From the late 1990s, online stock brokerage in Japan truly took off due to the spread of the internet and the full liberalization of stock trading commissions in October 1999. Because online brokers did not need salespeople and sales offices required at brick- and-mortar rivals, they were able to cap personnel and other fixed costs and offer relatively low commission rates, which led to an expansion in customer account volume.

Industry consolidation to five major online brokerages in early 2000s In 2001, following the collapse of the IT bubble, a number of players withdrew from the market because of earnings deterioration as the stock market languished, and online brokers were quick to execute a number of mergers and consolidations. In 2001, eWing Securities, affiliated with former Sanwa Bank. Ltd. (now Bank of Tokyo-Mitsubishi UFJ), and Japan Online Securities, funded by Itochu Corporation among others, merged to form kabu.com Securities; in 2003 E*TRADE Securities merged with Fides Securities (former Nissho Iwai Securities Co., Ltd.) to form SBI E*TRADE Securities; in 2005, Monex and Nikko Beans merged to form Monex Beans.

As a result, in 2005 the online brokerage industry came to be dominated by five major firms; Monex Beans, SBI Securities, Rakuten Securities, Matsui Securities, and kabu.com Securities. In FY03/05, these five online brokers accounted for around 60% of the overall equity trading value of retail investors.

69/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Trading value and share of trading value of retail investors at major online brokerages

(JPYt n) FY03/02 FY03/03 FY03/04 FY03/05 FY03/06 T rading value (ret ail invest ors) 52 54 112 156 337 YoY - 4.3% 107.5% 39.0% 116.4% T rading value at five online brokerages 15 19 50 93 193 YoY - 24.9% 170.7% 84.9% 107.4% Five firms' share of trading value by retail investors 28.6% 34.3% 44.8% 59.6% 57.1% Source: Shared Research based on company data Note: Trading value (retail investors) includes Tokyo Stock Exchange (TSE), Osaka Securities Exchange (OSE), and Nagoya Stock Exchange (NSE). Excludes ETFs or REITs. Note: The five online brokerages referred to above comprise Monex, SBI Securities, Rakuten Securities, Matsui Securities, and kabu.com Securities.

From 2001, commission reduction competition intensifies In 2001, E*TRADE Securities (currently SBI Securities) entered the Japanese online brokerage market; it offered services with the lowest commission rates in the industry. Rakuten Securities followed in cutting commission rates. E*TRADE Securities’ commission levels dragged the other online brokers rates down, so in the early 2000s, the online brokers’ commission rates (commissions ÷ trading value) fell.

The five largest online brokers’ commission strategies varied. SBI Securities and Rakuten Securities were both aggressive in cutting commissions. Conversely, Monex, Matsui Securities, and kabu.com Securities were reluctant to engage in aggressive commission cutting, preferring to differentiate through products and services.

As a result, commission rates for SBI Securities and Rakuten Securities had fallen to between 0.05% and 0.059% in FY03/06 and their market share based on retail equity trading value exceeded 30% in FY03/05. Meanwhile, the market share of Monex, Matsui Securities, and kabu.com Securities all languished.

Brokerage commission rates

FY03/02 FY03/03 FY03/04 FY03/05 FY03/06 SBI Securities - 0.07% 0.06% 0.06% 0.05% Rakuten Securities 0.13% 0.10% 0.08% 0.06% 0.06% Monex, Inc. 0.21% 0.20% 0.15% 0.11% 0.10% Mat sui Securit ies 0.17% 0.17% 0.14% 0.12% 0.12% kabu.com Securities 0.22% 0.14% 0.10% 0.10% 0.09% Source: Shared Research based on each company’s data

Five online brokerages’ share of equity trading value of retail investors

FY03/02 FY03/03 FY03/04 FY03/05 FY03/06 SBI Securities 6.9% 10.7% 15.2% 21.1% 23.0% Rakuten Securities 7.1% 8.1% 9.5% 11.3% 11.0% Monex, Inc. 2.6% 2.1% 3.3% 8.7% 8.0% Mat sui Securit ies 10.6% 10.3% 12.2% 13.1% 9.9% kabu.com Securities 1.5% 3.0% 4.6% 5.4% 5.2% Source: Shared Research based on each company’s data Note: Does not include ETFs or REITs.

Profit growth through FY03/06 for the five majors Through the first half of the 2000s, the five major online brokers had increased their market share in retail equity trading. In FY03/06, these online brokerages enjoyed record revenues and profits, buoyed by an upturn in the stock market. In line with rising trading commissions, in FY03/06 their aggregate operating revenue reached JPY204.0bn (from JPY23.7bn in FY03/02) and operating profit totaled JPY120.1bn (from JPY2.5bn).

Earnings totals for the five major online brokerages

(JPYmn) FY03/02 FY03/03 FY03/04 FY03/05 FY03/06 Operating revenue 23,717 32,924 64,667 102,166 203,974 YoY - 38.8% 96.4% 58.0% 99.6% Commissions received 20,212 25,434 52,824 77,572 153,267 YoY - 25.8% 107.7% 46.9% 97.6% Financial income 3,372 7,055 11,093 22,799 44,863 YoY - 109.3% 57.2% 105.5% 96.8% Net operating revenue 21,718 29,343 60,579 95,173 192,543 YoY - 35.1% 106.5% 57.1% 102.3% SG&A expenses 19,184 26,962 32,485 45,068 72,410 YoY - 40.5% 20.5% 38.7% 60.7% Operating profit 2,534 2,382 28,090 50,103 120,134 YoY - -6.0% - 78.4% 139.8% Source: Shared Research based on various company data Notes: FY03/02 figures do not include SBI Securities (data undisclosed).

70/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

FY03/07–FY03/12 online brokerage industry in correction phase Following Livedoor shock, online securities brokers’ earnings fell Following the so-called Livedoor shock in January 2006, equity trading value fell. It declined further after the global financial crisis of September 2008. On the TSE and NSE, the equity trading value of retail investors fell for six consecutive years from FY03/07, falling from JPY336tn in FY03/06 to JPY112tn in FY03/12.

Because online brokerages depended on individual stock investors, they all suffered falling revenues and profits from FY03/07 through FY03/12. Through cost-cutting, they were able to avoid operating losses, but aggregate operating profit for the five major online brokerages fell from JPY120.1bn in FY03/06 to JPY23.9bn in FY03/12.

Earnings totals for five online brokerages

(JPYmn) FY03/06 FY03/07 FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 Operating revenue 203,974 183,318 173,637 134,464 127,526 124,017 109,060 YoY 99.6% -10.1% -5.3% -22.6% -5.2% -2.8% -12.1% Commissions received 153,267 119,525 108,832 84,601 79,429 73,786 62,842 YoY 97.6% -22.0% -8.9% -22.3% -6.1% -7.1% -14.8% Financial income 44,863 54,611 59,065 44,867 37,227 38,436 35,458 YoY 96.8% 21.7% 8.2% -24.0% -17.0% 3.2% -7.7% Net operating revenue 192,543 170,895 158,269 122,946 117,018 113,973 99,449 YoY 102.3% -11.2% -7.4% -22.3% -4.8% -2.6% -12.7% SG&A expenses 72,410 86,920 89,320 84,642 78,958 82,109 75,705 YoY 60.7% 20.0% 2.8% -5.2% -6.7% 4.0% -7.8% Operating profit 120,134 83,973 68,949 34,538 38,057 31,862 23,743 YoY 139.8% -30.1% -17.9% -49.9% 10.2% -16.3% -25.5% Source: Shared Research based on company data

Sixth major player enters the scene From FY03/06, the market share of retail equity trading value held by the five major online brokers continued to rise. Industry mergers reinforced this trend. In 2007, SBI E*TRADE Securities merged with World Nichiei Frontier Securities, and in 2010 Monex merged with ORIX Securities, growing the market share of the five major online brokers even further.

In 2005, GMO CLICK Securities entered the business, offering the lowest commissions in the industry. This enabled it to grow its share, and in FY03/12, its share of trading value was second only to Rakuten Securities. As a result, GMO CLICK Securities became a sixth player, and the oligopoly of six companies was entrenched. In FY03/12, the six major online brokers accounted for roughly 80% of the equity trading value of retail investors.

Trading value and share of trading value of retail investors at major online brokerages (JPYt n) FY03/06 FY03/07 FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 T rading value (ret ail invest ors) 337 293 247 167 155 130 112 YoY 116.4% -13.0% -15.9% -32.5% -6.8% -16.1% -14.1% T rading value at five online brokerages 193 188 169 120 107 91 78 YoY 107.4% -2.6% -9.8% -28.9% -11.5% -14.6% -14.9% Five firms' share of trading value by retail investors 57.1% 63.9% 68.6% 72.3% 68.7% 69.9% 69.2% T rading value at six online brokerages - - 173 126 113 99 86 YoY - - - -27.6% -9.8% -12.8% -12.4% Six firms' share of trading value by retail investors - - 70.3% 75.4% 72.9% 75.7% 77.2% Source: Shared Research based on each company’s data Note: Trading value (retail investors) includes Tokyo Stock Exchange (TSE), Osaka Securities Exchange (OSE), and Nagoya Stock Exchange (NSE). Includes ETFs and REITs starting in FY03/07. Note: The five online brokerages comprise SBI Securities, Rakuten Securities, Matsui Securities, Monex, Inc. and kabu.com Securities. Note: The six online brokerages comprise SBI Securities, Rakuten Securities, Matsui Securities, Monex, Inc., kabu.com Securities, and GMO CLICK Securities.

Major securities firms’ efforts fizzle out While online brokers continued to expand their market share, Nomura Securities set up Joinvest Securities to enter the online brokerage market in FY03/07. However, the pace of new account openings in the industry was decelerating at that point, and commissions had already fallen substantially. Joinvest’s new account opening performance and commission income were both dismal. In FY03/08, the company posted a JPY6.0bn net loss. In June 2008, the company announced price increases in a bid to improve profitability, but it posted a JPY4.7bn loss in FY03/09. In November 2009, it announced a merger with Nomura Securities (changing its name to Nomura Net and Call in October 2011).

71/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Brokerage commissions fall There had not been strong competition among the online brokers in commission rates since FY03/07, and commission rates were stable until FY03/12. That changed in FY03/10, when kabu.com Securities began to aggressively cut commissions by expanding the range of large margin trading customers to whom it offers commission-free trades. In FY03/12, it revised commissions on cash trades. Thus, from FY03/11 onward, commission fees throughout the industry have fallen gradually.

Brokerage commission rates FY03/06 FY03/07 FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 SBI Securities 0.05% 0.03% 0.03% 0.03% 0.04% 0.04% 0.04% Rakuten Securities 0.06% 0.05% 0.04% 0.05% 0.05% 0.06% 0.06% Monex, Inc. 0.10% 0.11% 0.11% 0.11% 0.12% 0.10% 0.09% Mat sui Securit ies 0.12% 0.09% 0.12% 0.12% 0.12% 0.13% 0.13% kabu.com Securities 0.09% 0.08% 0.08% 0.09% 0.09% 0.08% 0.07% Source: Shared Research based on each company’s data

Stable share for the six major online brokers GMO Click Securities began to increase its market share from FY03/07 following an industry shakeup caused by mergers and acquisitions. Monex, Inc.’s share rose as a result of merging with Orix Securities in May 2010. kabu.com Securities’ aggressively lowered commissions from FY03/11.

Six online brokerages’ share of trading value of retail investors FY03/06 FY03/07 FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 SBI Securities 23.0% 29.1% 35.6% 38.3% 35.1% 33.4% 32.9% Rakuten Securities 11.0% 13.3% 13.4% 14.3% 14.2% 14.5% 14.8% Monex, Inc. 8.0% 6.5% 6.1% 6.2% 5.4% 7.3% 7.3% Mat sui Securit ies 9.9% 9.1% 7.7% 7.7% 8.0% 8.0% 7.2% kabu.com Securities 5.2% 5.9% 5.8% 5.8% 6.0% 6.7% 7.0% GMO CLICK Securit ies - - 1.7% 3.1% 4.3% 5.8% 8.0% Source: Shared Research based on each company’s data

FY03/13 and later Earnings recovering since FY03/13 Recovery in the broader stock market brought with it an increase in trades by retail investors and a corresponding recovery in online brokers’ earnings from FY03/13 onward.

Earnings totals for five online brokerages

(JPYmn) FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 Operating revenue 123,137 219,467 213,892 233,680 207,303 247,433 241,475 YoY 12.9% 78.2% -2.5% 9.3% -11.3% 19.4% -2.4% Commissions received 73,156 132,143 115,710 122,136 103,077 118,577 106,788 YoY 16.4% 80.6% -12.4% 5.6% -15.6% 15.0% -9.9% Financial income 37,896 68,428 77,735 82,452 77,541 101,288 96,848 YoY 6.9% 80.6% 13.6% 6.1% -6.0% 30.6% -4.4% Net operating revenue 114,477 207,883 199,888 218,046 190,763 229,438 225,726 YoY 15.1% 81.6% -3.8% 9.1% -12.5% 20.3% -1.6% SG&A expenses 77,128 99,570 103,853 115,779 117,922 131,591 141,261 YoY 1.9% 29.1% 4.3% 11.5% 1.9% 11.6% 7.3% Operating profit 37,347 108,313 96,032 102,266 72,840 97,846 84,461 YoY 57.3% 190.0% -11.3% 6.5% -28.8% 34.3% -13.7% Source: Shared Research based on various company data

Six online brokerages dominate the industry Alongside a continuing market recovery since FY03/13, the proportion of retail trades conducted online has risen, and during FY03/19, the six major online brokerages together handled more than 85% of overall retail equity trades (84% in FY03/18).

Trading value and share of trading value of retail investors at major online brokerages

(JPYt n) FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 Trading value (retail investors) 112 155 385 314 331 266 317 274 YoY -14.1% 38.5% 148.0% -18.5% 5.6% -19.8% 19.4% -13.5% Trading value at five major online brokerages 78 109 279 235 247 204 243 219 YoY -14.9% 39.9% 156.8% -15.7% 5.1% -17.2% 19.1% -10.1% Five firms' share of t rading value by ret ail invest ors 69.2% 69.9% 72.4% 74.9% 74.5% 76.9% 76.7% 79.7% Trading value at six major online brokerages 86 121 310 261 274 226 266 233 YoY -12.4% 39.4% 157.2% -15.7% 4.7% -17.5% 17.5% -12.1% Six firms' share of t rading value by ret ail invest ors 77.2% 77.7% 80.6% 83.3% 82.6% 85.0% 83.7% 85.1% Source: Shared Research based on various company data Note: Equity trading value (retail investors) includes Tokyo Stock Exchange (TSE), Osaka Securities Exchange (OSE), and Nagoya Stock Exchange (NSE). Includes ETFs and REITs. Note: The five firms referred to above comprise SBI Securities, Rakuten Securities, Matsui Securities, Monex, Inc., and kabu.com Securities. Note: The six firms referred to above comprise SBI Securities, Rakuten Securities, Matsui Securities, Monex, Inc., kabu.com Securities, and GMO CLICK Securities.

72/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Commissions trending flat after a period of downward movement In January 2013, Matsui Securities introduced a commission-free service, Margin Trading Service for Day-trades. Limited to day traders, it effectively offered a cut in commissions. During FY03/14, Rakuten Securities, Matsui Securities, and kabu.com Securities also lowered their commissions. Since then, brokerage commissions in general have either remained largely unchanged or have been slowly declining. As of FY03/19, commission rates of major online brokers other than Monex and Matsui Securities were already down to a substantial low of 0.03% or below.

From FY03/12 onward, market share has trended significantly higher for Rakuten Securities and SBI Securities. Market share of Matsui Securities rose until FY03/17 before heading down; Monex, Inc.’s market share declined until FY03/16 and has trended flat thereafter; and kabu.com Securities’ market share rose moderately until FY03/15 but has since remained level.

Brokerage commission rates

FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 SBI Securities 0.04% 0.03% 0.02% 0.03% 0.03% 0.03% 0.03% 0.03% Rakuten Securities 0.06% 0.06% 0.04% 0.04% 0.04% 0.04% 0.03% 0.03% Monex, Inc. 0.09% 0.09% 0.09% 0.09% 0.09% 0.10% 0.08% 0.08% Mat sui Securit ies 0.13% 0.10% 0.06% 0.05% 0.05% 0.05% 0.05% 0.05% kabu.com Securities 0.07% 0.06% 0.04% 0.04% 0.03% 0.03% 0.03% 0.03% Source: Shared Research based on each company’s data

Six online brokerages’ share of equity trading value of retail investors

FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 SBI Securities 32.9% 32.6% 33.8% 34.6% 34.9% 34.8% 35.1% 36.2% Rakuten Securities 14.8% 14.8% 14.6% 14.5% 14.1% 15.2% 16.4% 19.2% Monex, Inc. 7.3% 7.1% 6.2% 5.5% 5.1% 5.0% 5.3% 5.2% Mat sui Securit ies 7.2% 8.2% 10.5% 11.7% 11.7% 13.1% 11.2% 10.4% kabu.com Securities 7.0% 7.2% 7.4% 8.6% 8.7% 8.9% 8.8% 8.9% GMO CLICK Securit ies 8.0% 7.7% 8.1% 8.5% 8.2% 8.1% 7.0% 5.3% Source: Shared Research based on each company’s data

By FY03/19 the six major online brokerages were handling more than 85% of the overall retail equity trade value. Since the early 2000s, online brokers have achieved earnings growth by taking market share from their brick-and-mortar rivals, and Shared Research believes that there is limited room for further growth through this approach. With regard to commission rates, we would note that while over the last ten years there have been no major changes in commission rates at SBI Securities, commission rates at Rakuten Securities have come down about 50% and commission rates at both kabu.com Securities and Matsui Securities have come down by more than 50%. As a result, the brokerage commission rate at SBI Securities, Rakuten Securities, and kabu.com Securities is down to 0.03% while the rate for Matsui Securities has come down to 0.05%. With little room left for commission rates to come down, Shared Research believes online brokers will have to either seek growth opportunities in areas other than commissions from retail equity trading or try to increase brokerage commissions by distinguishing themselves from competitors based on factors other than low commission rates and siphoning market share.

Regulatory changes

In the postwar period, the Japanese financial industry was led by the Ministry of Finance under the so-called convoy system, where businesses were regulated and competition limited. Foreign pressure to liberalize the financial system and the risk of the Tokyo markets hollowing out led the second Hashimoto administration to propose and carry out “big bang” reforms in the financial system in 1996.

The liberalization of brokerage commissions In April 1998, stock brokerage contract rules were amended so that trades of over JPY50mn were deregulated. In October 1999, all trades were deregulated, enabling stock brokerage firms to set their own commission structures.

Negotiable margin trading In December 1998, the Financial Instruments and Exchange Act was revised to include the free (non-regulated) setting of contracts between investors and securities firms with respect to settlement deadlines, interest and stock lending rates, and the treatment of rights.

73/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Changes in margin requirements for margin trading In January 2013, changes to article 161 of the Financial Instruments and Exchange Act due to a ministerial ordinance saw revisions to the way that collateral was calculated for margin trading.

This entailed a change from a delivery date basis to a trade date basis for the restraint period relating to margin requirements. The previous rules required that investors pledge deposits related to a margin trade until the day after closing the position. This limited how many trades could be carried out with one deposit. After the reforms, once the old contract had been closed out, the collateral for the old contract could be used as collateral for a new contract. This enabled the same deposits to be used multiple times for margin trades per day. In addition, profits realized from any reversing trade could be included in the margin trading deposit balance—even before the delivery date.

Competition Earnings and characteristics of the top five online brokerages Online brokerages have one common characteristic—their high reliance on stock brokerage commissions and net financial income from margin trading. Thus, their earnings are sensitive to changes in the stock market. Each of the five major online brokerages has its own commission strategy and diversification strategy; the breakdown of their net operating revenues reflects these strategies.

Earnings at five major online brokerages

FY03/19 Monex, Inc. SBI Rakuten Matsui kabu.com (JPYmn) Securit ies Securit ies Securit ies Securit ies Operating revenue 29,014 104,454 59,492 27,313 21,202 Net operating revenue 26,045 98,779 56,636 25,999 18,267 Commissions received 13,369 47,809 20,803 14,986 8,821 % of net operating revenue 51.3% 48.4% 36.7% 57.6% 48.3% Brokerage 10,778 29,769 15,088 14,285 7,090 % of net operating revenue 41.4% 30.1% 26.6% 54.9% 38.8% Subscription, secondary distribution, and 355 5,462 1,484 27 262 solicit at ion for selling for professional invest ors % of net operating revenue 1.4% 5.5% 2.6% 0.1% 1.4% Ot her commissions 2,165 9,191 4,204 652 1,468 % of net operating revenue 8.3% 9.3% 7.4% 2.5% 8.0% Net t rading income 4,530 14,779 15,777 1,214 1,040 % of net operating revenue 17.4% 15.0% 27.9% 4.7% 5.7% Net financial income 8,049 36,127 19,021 9,798 8,290 % of net operating revenue 30.9% 36.6% 33.6% 37.7% 45.4% Financial income 11,018 41,802 21,875 11,112 11,041 Financial expenses 2,969 5,675 2,854 1,314 2,751 Others 168 62 1,062 23 117 % of net operating revenue 0.6% 0.1% 1.9% 0.1% 0.6% SG&A expenses 23,282 55,221 37,825 12,547 12,386 % of net operating revenue 89.4% 55.9% 66.8% 48.3% 67.8% Operating profit 2,762 43,557 18,810 13,451 5,881 % of net operating revenue 10.6% 44.1% 33.2% 51.7% 32.2% Net assets 48,602 173,734 92,926 96,579 42,151 Source: Shared Research based on various company data Note: Monex, Inc. data (Japanese GAAP) used for Monex

74/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Five major online brokerages

Monex, Inc. SBI Rakuten Matsui kabu.com Securities Securities Securities Securities Competitive commissions No Yes Yes No Yes Brokerage commission rate 0.08% 0.03% 0.03% 0.05% 0.03% Point of difference - Many trading - Commissions - Commissions - Margin Trading - Many trading order options - HYPER short- - One-day margin Service for Day- order options - Availability of selling trade trades - Availability of and commissions - Special short - Premium Short- short stocks for for US stock selling selling general margin - Trading tool trades Number of accounts ('000) 1,818 4,631 3,017 1,184 1,118 Number of margin account ('000) 127 592 283 191 154 Margin account ratio 7.0% 12.8% 9.4% 16.1% 13.8% Assets under customers' account (JPYbn) 4,059 11,413 5,598 2,340 2,205 Assets under customers' account per account (JPYmn) 2.2 2.5 1.9 2.0 2.0 Equity trading value (JPYbn) 14,166 99,250 52,593 28,415 24,292 Equity trading value per account (JPYmn) 7.8 21.4 17.4 24.0 21.7 Margin trading balance (JPYbn) 157 838 405 233 299 Margin trading balance per account (JPYmn) 0.09 0.18 0.13 0.20 0.27 Margin trading balance per margin account (JPYmn) 1.23 1.41 1.43 1.22 1.95 Source: Shared Research based on Matsui Securities, SBI Securities, Rakuten Securities, Monex Securities, kabu.com Securities data Note: Brokerage commission rates are calculated utilizing data from FY03/19.

Commission strategy Since the early 2000s, SBI Securities and Rakuten Securities have had a strategy of winning customers through low commissions. Monex, Matsui, and kabu.com were reluctant to lower commissions, but kabu.com began to lower commissions in FY03/10, and Matsui aggressively followed suit from FY03/13 onward. kabu.com has continued to aggressively lower commissions. Since FY03/10, it has expanded the number of customers with large margin-trading accounts to whom it offers commission-free trades, and in FY03/12, it revised its cash trading commissions. It also reduced margin-trading fees in November 2013 and spot-trading fees in November 2015. Meanwhile, Matsui launched its margin day trading service in Q4 FY03/13. Commission rates declined from FY03/13 onward.

By lowering commissions in various ways, kabu.com and Matsui were able to increase their share of retail equity trading by retail investors up until FY03/17. However, in May 2017 Rakuten Securities introduced a new service aimed at day-traders with interest rates and stock borrowings charges that were lower than Matsui Security’s Margin Trading Service for Day-Trades, and this led to a decline in the market share of Matsui Securities and an increase in the market share of Rakuten Securities in FY03/18–FY03/19.

Key indicators of the top five online brokerages Number of customer accounts, customer assets in custody, equity trading value, margin trading balance, and per account operating revenue The core source of revenues for online brokerages is brokerage commissions and net financial income, which are affected by the number of customer accounts. These companies earn their commissions and financial income when customers deposit assets into their accounts and engage in cash or margin trades using those assets. Therefore, we think comparing key indicators of online brokerages like account numbers, assets under custody, equity trade value, and margin trading balance is important in understanding the competitive landscape of these companies.

The comparative analysis of these indicators suggests that Monex, Inc. has relatively lower indicators.

Low ratio of margin accounts relative to total number of customer accounts ▷ Low equity trade value per account, trade frequency, and margin trade balance per account ▷ Low operating revenue per account. In particular, financial income per account and its growth rate are both low ▷

75/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Number of customer accounts

Number of customer accounts FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 5-yr CA GR SBI Securities 2,943,969 3,246,363 3,563,881 3,839,883 4,261,410 4,630,676 9.5% Rakuten Securities 1,673,081 1,838,630 2,039,530 2,250,038 2,610,549 3,017,334 12.5% Monex, Inc. 1,457,574 1,533,992 1,635,172 1,696,123 1,760,805 1,817,926 4.5% Mat sui Securit ies 942,005 1,002,439 1,056,072 1,094,240 1,136,018 1,184,102 4.7% kabu.com Securities 869,044 920,998 1,002,268 1,048,720 1,087,327 1,118,041 5.2% Total 7,885,673 8,542,422 9,296,923 9,929,004 10,856,109 11,768,079 8.3% Source: Shared Research based on each company’s data

Customer account growth rate FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 SBI Securities 12.9% 10.3% 9.8% 7.7% 11.0% 8.7% Rakuten Securities 14.4% 9.9% 10.9% 10.3% 16.0% 15.6% Monex, Inc. 8.0% 5.2% 6.6% 3.7% 3.8% 3.2% Mat sui Securit ies 8.2% 6.4% 5.4% 3.6% 3.8% 4.2% kabu.com Securities 7.3% 6.0% 8.8% 4.6% 3.7% 2.8% Total 11.1% 8.3% 8.8% 6.8% 9.3% 8.4% Source: Shared Research based on each company’s data

Margin accounts FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 5-yr CA GR SBI Securities 314,183 355,375 409,473 462,555 527,102 592,312 13.5% Rakuten Securities 172,441 187,514 205,861 222,452 252,675 282,938 10.4% Monex, Inc. - 97,515 105,041 110,954 118,921 127,444 6.7% Mat sui Securit ies 147,788 159,375 169,534 177,242 184,731 190,961 5.3% kabu.com Securities 100,085 113,528 127,290 138,146 146,730 153,839 9.0% Source: Shared Research based on each company’s data Note: In the case of Monex, the 5-year CAGR reflects the average growth rate from FY03/15 through FY03/19.

Margin account growth rate FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 SBI Securities 17.7% 13.1% 15.2% 13.0% 14.0% 12.4% Rakuten Securities 12.3% 8.7% 9.8% 8.1% 13.6% 12.0% Monex, Inc. - - 7.7% 5.6% 7.2% 7.2% Mat sui Securit ies 9.8% 7.8% 6.4% 4.5% 4.2% 3.4% kabu.com Securities 12.3% 13.4% 12.1% 8.5% 6.2% 4.8% Source: Shared Research based on each company’s data

Margin account ratio (number of margin accounts / number of customer accounts) FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 SBI Securities 10.7% 10.9% 11.5% 12.0% 12.4% 12.8% Rakuten Securities 10.3% 10.2% 10.1% 9.9% 9.7% 9.4% Monex, Inc. - 6.4% 6.4% 6.5% 6.8% 7.0% Mat sui Securit ies 15.7% 15.9% 16.1% 16.2% 16.3% 16.1% kabu.com Securities 11.5% 12.3% 12.7% 13.2% 13.5% 13.8% Source: Shared Research based on each company’s data

Customer assets in custody

Customer assets in custody (JPYmn) FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 5-yr CA GR SBI Securities 6,750,100 8,184,500 8,313,300 9,388,200 11,425,700 11,412,900 11.1% Rakuten Securities 2,752,308 3,506,620 3,533,823 4,099,172 5,026,163 5,598,103 15.3% Monex, Inc. 3,149,938 3,705,472 3,477,282 3,803,176 4,229,011 4,058,500 5.2% Mat sui Securit ies 1,916,806 2,215,656 2,063,892 2,275,160 2,524,428 2,340,344 4.1% kabu.com Securities 1,687,805 2,026,681 1,920,672 2,120,425 2,335,600 2,205,100 5.5% Total 16,256,957 19,638,929 19,308,969 21,686,133 25,540,902 25,614,947 9.5% Source: Shared Research based on each company’s data

Per account assets under custody (JPYmn) FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 SBI Securities 2.3 2.5 2.3 2.4 2.7 2.5 Rakuten Securities 1.6 1.9 1.7 1.8 1.9 1.9 Monex, Inc. 2.2 2.4 2.1 2.2 2.4 2.2 Mat sui Securit ies 2.0 2.2 2.0 2.1 2.2 2.0 kabu.com Securities 1.9 2.2 1.9 2.0 2.1 2.0 Source: Shared Research based on each company’s data

76/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Equity trading value

Equity trading value

(JPYmn) FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 5-yr CAGR SBI Securities 129,985,891 108,448,960 115,715,106 92,515,600 111,228,600 99,249,700 -5.3% Rakuten Securities 56,036,747 45,578,939 46,549,165 40,416,297 51,942,687 52,593,061 -1.3% Monex, Inc. 23,855,300 17,093,831 17,054,153 13,315,856 16,768,680 14,165,700 -9.9% Mat sui Securit ies 40,444,819 36,626,479 38,724,705 34,680,714 35,606,752 28,414,607 -6.8% kabu.com Securities 28,373,267 27,093,482 28,675,866 23,534,144 27,872,478 24,292,400 -3.1% Total 278,696,024 234,841,691 246,718,995 204,462,611 243,419,197 218,715,468 -4.7% Source: Shared Research based on each company’s data

Per account equity trading value (equity trading value / number of customer accounts) FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 SBI Securities 46.8 35.0 34.0 25.0 27.5 22.3 Rakuten Securities 35.7 26.0 24.0 18.8 21.4 18.7 Monex, Inc. 17.0 11.4 10.8 8.0 9.7 7.9 Mat sui Securit ies 44.6 37.7 37.6 32.3 31.9 24.5 kabu.com Securities 33.8 30.3 29.8 22.9 26.1 22.0 Source: Shared Research based on various company data Note: number of customer accounts is the average of account numbers at beginning and end of financial year

Trade frequency (equity trading value / customer assets in custody) FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 SBI Securities 20.8 14.5 14.0 10.5 10.7 8.7 Rakuten Securities 22.3 14.6 13.2 10.6 11.4 9.9 Monex, Inc. 8.0 5.0 4.7 3.7 4.2 3.4 Mat sui Securit ies 22.3 17.7 18.1 16.0 14.8 11.7 kabu.com Securities 18.0 14.6 14.5 11.6 12.5 10.7 Source: Shared Research based on each company’s data Margin trading balance

Margin trading balance (JPYmn) FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 5-yr CA GR SBI Securities 691,000 787,000 677,000 799,000 1,001,000 838,000 3.9% Rakuten Securities 322,252 358,480 303,752 353,418 468,483 405,325 4.7% Monex, Inc. 189,900 197,800 163,400 166,000 205,300 157,000 -3.7% Mat sui Securit ies 295,295 319,024 255,177 278,086 331,931 232,829 -4.6% kabu.com Securities 247,550 289,124 265,811 295,752 335,822 299,300 3.9% Source: Shared Research based on each company’s data

Per account margin trading balance (JPYmn) FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 SBI Securities 0.23 0.24 0.19 0.21 0.23 0.18 Rakuten Securities 0.19 0.19 0.15 0.16 0.18 0.13 Monex, Inc. 0.13 0.13 0.10 0.10 0.12 0.09 Mat sui Securit ies 0.31 0.32 0.24 0.25 0.29 0.20 kabu.com Securities 0.28 0.31 0.27 0.28 0.31 0.27 Source: Shared Research based on various company data Per account revenue

Per account net operating revenue (net operating revenue / number of customer accounts) (JPY) FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 5-yr CA GR SBI Securities 25,169 23,323 23,204 20,209 23,771 22,217 -2.5% Rakuten Securities 27,647 25,077 26,691 20,459 21,510 20,127 -6.2% Monex, Inc. 24,683 19,933 20,123 15,929 17,006 14,555 -10.0% Mat sui Securit ies 42,744 33,833 32,065 24,647 27,333 22,412 -12.1% kabu.com Securities 25,354 23,418 23,282 18,568 19,662 16,566 -8.2% Source: Shared Research based on each company’s data Note: Number of customer accounts is the average of account numbers at beginning and end of financial year.

Per account brokerage commissions (brokerage commissions / number of customer accounts) (JPY) FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 5-yr CA GR SBI Securities 11,594 9,242 9,195 7,690 8,522 6,696 -10.4% Rakuten Securities 13,720 10,579 9,814 7,306 7,335 5,362 -17.1% Monex, Inc. 14,718 10,623 10,191 7,614 8,237 6,023 -16.4% Mat sui Securit ies 28,887 20,597 19,834 15,123 16,366 12,314 -15.7% kabu.com Securities 13,507 10,639 10,375 7,832 8,451 6,430 -13.8% Source: Shared Research based on each company’s data Note: Number of customer accounts is the average of account numbers at beginning and end of financial year.

77/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Per account net financial income (net financial income / number of customer accounts) (JPY) FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 5-yr CA GR SBI Securities 7,295 7,604 7,754 7,176 9,415 8,126 2.2% Rakuten Securities 7,347 7,552 7,113 6,224 7,646 6,760 -1.7% Monex, Inc. 4,560 4,568 4,129 3,879 4,466 4,498 -0.3% Mat sui Securit ies 12,550 12,048 10,931 8,593 9,246 8,446 -7.6% kabu.com Securities 8,695 9,372 9,184 7,347 8,462 7,518 -2.9% Source: Shared Research based on each company’s data Note: Number of customer accounts is the average of account numbers at beginning and end of financial year.

SG&A expenses of top five online brokerages A comparative analysis of the SG&A expenses of top five online brokerages shows the following characteristics of Monex, Inc.

High SG&A expense ratio (SG&A expenses to net operating revenue ratio) and per account SG&A expenses ▷ High per account system-related expenses ▷

SG&A expenses

SG&A expenses (JPYmn) FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 5-yr CA GR SBI Securities 37,118 37,507 41,050 42,253 51,154 55,221 8.3% Rakuten Securities 20,730 23,613 27,275 26,836 31,398 37,825 12.8% Monex, Inc. 20,367 21,088 24,428 25,738 24,024 23,282 2.7% Mat sui Securit ies 11,648 10,806 11,258 11,560 11,949 12,547 1.5% kabu.com Securities 9,707 10,839 11,768 11,535 13,066 12,386 5.0% Source: Shared Research based on each company’s data

SG&A expenses to net operating revenue ratio FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 SBI Securities 53.1% 52.0% 52.0% 56.5% 53.1% 55.9% Rakuten Securities 47.8% 53.6% 52.7% 61.2% 60.1% 66.8% Monex, Inc. 58.8% 70.7% 76.6% 97.0% 81.7% 89.4% Mat sui Securit ies 30.1% 32.9% 34.1% 43.6% 39.2% 48.3% kabu.com Securities 45.6% 51.7% 52.6% 60.6% 62.2% 67.8% Source: Shared Research based on each company’s data

Per account SG&A expenses (JPY) FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 SBI Securities 13,369 12,118 12,055 11,414 12,629 12,420 Rakuten Securities 13,223 13,448 14,066 12,512 12,919 13,442 Monex, Inc. 14,513 14,098 15,416 15,452 13,899 13,011 Mat sui Securit ies 12,853 11,115 10,938 10,752 10,715 10,816 kabu.com Securities 11,562 12,110 12,238 11,248 12,234 11,233 Source: Shared Research based on each company’s data Note: Number of customer accounts is the average of account numbers at beginning and end of financial year.

Transaction-related expenses

Transaction-related expenses (JPYmn) FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 5-yr CA GR SBI Securities 9,849 9,238 10,142 8,833 11,249 10,660 1.6% Rakuten Securities 9,172 9,932 11,250 10,975 14,219 17,228 13.4% Monex, Inc. 6,175 6,278 6,436 5,432 5,886 5,168 -3.5% Mat sui Securit ies 4,957 4,719 4,674 4,345 4,592 4,408 -2.3% kabu.com Securities 4,672 5,500 5,908 5,010 5,732 4,761 0.4% Source: Shared Research based on various company data Personnel expenses

Personnel expenses FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 5-yr CA GR SBI Securities 3,694 4,227 4,654 5,481 6,071 6,850 13.1% Rakuten Securities 2,743 3,310 3,705 3,597 3,943 4,754 11.6% Monex, Inc. 2,629 2,579 3,019 2,995 2,812 2,676 0.4% Mat sui Securit ies 2,075 2,030 2,178 2,227 2,364 2,661 5.1% kabu.com Securities 1,154 1,159 1,166 1,427 1,511 1,566 6.3% Source: Shared Research based on each company’s data

78/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

System-related expenses

System-related expenses (JPYmn) FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 5-yr CA GR SBI Securities 19,770 20,760 22,194 23,434 29,035 30,906 9.3% Rakuten Securities 8,363 9,660 10,763 11,183 11,813 13,801 10.5% Monex, Inc. 8,073 9,049 11,335 13,567 11,839 12,121 8.5% Mat sui Securit ies 4,285 3,801 3,778 3,999 4,498 4,946 2.9% kabu.com Securities 3,453 3,714 3,847 4,356 5,050 5,045 7.9% Source: Shared Research based on each company’s data

System-related expenses to net operating revenue ratio FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 SBI Securities 28.3% 28.8% 28.1% 31.3% 30.2% 31.3% Rakuten Securities 19.3% 21.9% 20.8% 25.5% 22.6% 24.4% Monex, Inc. 23.3% 30.3% 35.5% 51.1% 40.3% 46.5% Mat sui Securit ies 11.1% 11.6% 11.4% 15.1% 14.8% 19.0% kabu.com Securities 16.2% 17.7% 17.2% 22.9% 24.0% 27.6% Source: Shared Research based on each company’s data

Per account system-related expenses (JPY) FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 SBI Securities 7,121 6,707 6,518 6,330 7,168 6,951 Rakuten Securities 5,335 5,502 5,551 5,214 4,861 4,905 Monex, Inc. 5,752 6,050 7,153 8,145 6,849 6,774 Mat sui Securit ies 4,728 3,910 3,671 3,719 4,034 4,264 kabu.com Securities 4,113 4,150 4,000 4,248 4,728 4,575 Source: Shared Research based on each company’s data Note: Number of customer accounts is the average of account numbers at beginning and end of financial year.

Per transaction system-related expenses (JPY) FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 SBI Securities ------Rakuten Securities 15.8 11.0 12.4 14.1 14.2 18.5 Monex, Inc. 11.9 16.0 20.2 26.9 21.1 23.2 Mat sui Securit ies 6.9 6.9 6.9 7.9 8.4 9.6 kabu.com Securities 3.1 3.6 3.7 4.8 5.3 5.4 Source: Shared Research based on each company’s data

Competitors SBI Securities Japan’s largest discount broker.

A subsidiary of SBI Holdings (TSE1: 8473). Parent company was Osawa Securities, which was founded in 1944. In October 1999, it began securities trading services over the internet as E*TRADE Securities. In 2005, it took over Fides Securities, and in October 2007 merged with SBI securities (formerly World Nichiei Frontier Securities). In August 2008, SBI Securities became a wholly owned subsidiary of SBI Holdings. The holding company structure contains banking, insurance and asset management businesses to ensure diversified financial services.

Since the early 2000s, SBI Securities has been growing its share of the retail investor market through the lowest commissions in the industry. As of May 2019, it was the largest online broker in the industry in terms of number of accounts, assets under custody, and trading value.

79/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Earnings trends and key indicators at SBI Securities

Key performance indicators FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 Number of accounts ('000) 2,609 2,944 3,246 3,564 3,840 4,261 4,631 YoY 9.3% 12.9% 10.3% 9.8% 7.7% 11.0% 8.7% Assets under customers' accounts (JPYbn) 5,721 6,750 8,185 8,313 9,388 11,426 11,413 YoY 32.6% 18.0% 21.3% 1.6% 12.9% 21.7% -0.1% Domestic equity brokerage trading value (JPYbn) 50,531 129,986 108,449 115,715 92,516 111,229 99,250 YoY 37.0% 157.2% -16.6% 6.7% -20.0% 20.2% -10.8% Earnings (JPYmn) FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 Net operating revenue 40,370 69,878 72,188 79,012 74,811 96,289 98,779 YoY 12.0% 73.1% 3.3% 9.5% -5.3% 28.7% 2.6% Commissions received 23,378 41,453 40,241 43,872 40,125 48,238 47,809 YoY 17.0% 77.3% -2.9% 9.0% -8.5% 20.2% -0.9% Brokerage 17,305 32,190 28,606 31,311 28,467 34,521 29,769 YoY 17.0% 86.0% -11.1% 9.5% -9.1% 21.3% -13.8% % of net operating revenue 42.9% 46.1% 39.6% 39.6% 38.1% 35.9% 30.1% Underwriting and distribution 297 575 1,441 1,146 1,495 958 3,387 Subscription and distribution 1,858 3,714 3,946 4,306 3,411 4,491 5,462 Other commissions 3,918 4,974 6,247 7,110 6,753 8,267 9,191 Net trading income 6,731 8,096 8,363 8,692 8,055 9,849 14,779 YoY -5.9% 20.3% 3.3% 3.9% -7.3% 22.3% 50.1% % of net operating revenue 16.7% 11.6% 11.6% 11.0% 10.8% 10.2% 15.0% Net financial income 10,187 20,254 23,537 26,402 26,565 38,137 36,127 YoY 16.1% 98.8% 16.2% 12.2% 0.6% 43.6% -5.3% % of net operating revenue 25.2% 29.0% 32.6% 33.4% 35.5% 39.6% 36.6% SG&A expenses 28,972 37,118 37,507 41,050 42,253 51,154 55,221 YoY 1.5% 28.1% 1.0% 9.4% 2.9% 21.1% 8.0% % of net operating revenue 71.8% 53.1% 52.0% 52.0% 56.5% 53.1% 55.9% Trading-related 5,903 9,849 9,238 10,142 8,833 11,249 10,660 YoY 7.3% 66.8% -6.2% 9.8% -12.9% 27.4% -5.2% Personnel 3,877 3,694 4,227 4,654 5,481 6,071 6,850 YoY -26.2% -4.7% 14.4% 10.1% 17.8% 10.8% 12.8% System-related 15,965 19,770 20,760 22,194 23,434 29,035 30,906 YoY 7.8% 23.8% 5.0% 6.9% 5.6% 23.9% 6.4% Others 3,227 3,806 3,282 4,059 4,504 4,795 6,804 YoY 8.6% 17.9% -13.8% 23.7% 11.0% 6.5% 41.9% Operating profit 11,399 32,760 34,681 37,962 32,559 45,134 43,557 YoY 51.9% 187.4% 5.9% 9.5% -14.2% 38.6% -3.5% % of net operating revenue 28.2% 46.9% 48.0% 48.0% 43.5% 46.9% 44.1% Source: Shared Research based on company data

Rakuten Securities A subsidiary of Rakuten Inc. (TSE1: 4755). In March 1999, DLJ Direct SFG Securities was established with investments from DLJ of the US and Sumitomo Bank. In June 1999, it began online brokerage services. In November 2003, it became a subsidiary of Rakuten, and in July 2004 it changed its name to Rakuten Securities.

It is cooperating with other companies in the Rakuten group to acquire customers, sell mutual funds, and offer loyalty points. Similar to SBI Securities, the company aggressively cut commissions in the early 2000s, increasing its market share in retail equity trading.

80/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Earnings trends and key indicators at Rakuten Securities

Key performance indicators FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 Number of accounts ('000) 1,462 1,673 1,839 2,040 2,250 2,611 3,017 YoY 14.3% 14.4% 9.9% 10.9% 10.3% 16.0% 15.6% Assets under customers' accounts (JPYbn) 2,279 2,752 3,507 3,534 4,099 5,026 5,598 YoY 36.7% 20.8% 27.4% 0.8% 16.0% 22.6% 11.4% Domestic equity brokerage trading value (JPYbn) 23,021 56,037 45,579 46,549 40,416 42,189 52,593 YoY 38.7% 143.4% -18.7% 2.1% -13.2% 4.4% 24.7% Margin trading balance (JPYmn) 266,769 322,252 358,480 303,752 353,418 468,483 405,325 YoY 77.7% 20.8% 11.2% -15.3% 16.4% 32.6% -13.5% Average margin trading balance (JPYmn) 166,797 320,795 332,274 346,611 300,775 399,998 417,755 YoY 92.3% 3.6% 4.3% -13.2% 33.0% 4.4% Earnings (JPYmn) FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 Net operating revenue 22,042 43,341 44,031 51,756 43,880 52,275 56,636 YoY 20.8% 96.6% 1.6% 17.5% -15.2% 19.1% 8.3% Commissions received 15,088 26,066 23,706 24,834 20,478 23,478 20,803 YoY 11.5% 72.8% -9.1% 4.8% -17.5% 14.6% -11.4% Brokerage commissions 11,484 21,509 18,576 19,031 15,669 17,825 15,088 YoY 22.3% 87.3% -13.6% 2.4% -17.7% 13.8% -15.4% % of net operating revenue 52.1% 49.6% 42.2% 36.8% 35.7% 34.1% 26.6% Subscriptoin and distribution 1,065 2,215 2,178 1,944 1,343 1,882 1,484 Other commissions 2,538 2,340 2,950 3,858 3,464 3,771 4,204 Net trading income 1,235 5,142 6,508 9,609 9,568 9,425 15,777 YoY 285.9% 316.4% 26.6% 47.6% -0.4% -1.5% 67.4% % of net operating revenue 5.6% 11.9% 14.8% 18.6% 21.8% 18.0% 27.9% Net interest income 5,094 11,517 13,261 13,793 13,349 18,581 19,021 YoY 29.0% 126.1% 15.1% 4.0% -3.2% 39.2% 2.4% % of net operating revenue 23.1% 26.6% 30.1% 26.7% 30.4% 35.5% 33.6% SG&A expenses 15,047 20,730 23,613 27,275 26,836 31,398 37,825 YoY 4.8% 37.8% 13.9% 15.5% -1.6% 17.0% 20.5% SG&A as % of net operating revenue 68.3% 47.8% 53.6% 52.7% 61.2% 60.1% 66.8% Trading related expenses 5,520 9,172 9,932 11,250 10,975 14,219 17,228 YoY 9.8% 66.2% 8.3% 13.3% -2.4% 29.6% 21.2% Personnel expenses 2,574 2,743 3,310 3,705 3,597 3,943 4,754 YoY 26.8% 6.6% 20.7% 11.9% -2.9% 9.6% 20.6% System related expenses 6,683 8,363 9,660 10,763 11,183 11,813 13,801 YoY -7.2% 25.1% 15.5% 11.4% 3.9% 5.6% 16.8% Other expenses 267 447 707 1,552 1,078 1,418 2,036 YoY 161.8% 67.4% 58.2% 119.5% -30.5% 31.5% 43.6% Operating profit 6,994 22,611 20,417 24,481 17,043 20,877 18,810 YoY 79.9% 223.3% -9.7% 19.9% -30.4% 22.5% -9.9% OPM 31.7% 52.2% 46.4% 47.3% 38.8% 39.9% 33.2% Source: Shared Research based on company data Note: Consolidated earnings since FY03/16; FY03/19 is the sum total of nine-month periods through end-FY12/18 and Q1 FY12/19.

Matsui Securities (TSE1: 8628) An independent brokerage established in 1918. In 1998, the current president, Michio Matsui, launched a full-scale internet stock trading service, the first of its kind in Japan. The company is known as an industry innovator that releases new products ahead of its online brokerage peers. In 1999, Matsui took advantage of the fully deregulated brokerage commissions and launched the “box rate service that charges commissions based on the total value of trades customers make per day. ”

Matsui focuses on profits and does not diversify excessively or engage in commission price wars. SG&A expense ratio is low and operating profit margin is high compared with its peers.

In January 2013, Matsui launched Margin Trading Service for Day-Trades, a new service exclusively for day-traders that use margin. Under the new service, for trades with a principal value of less than JPY3.0mn, no commission would be charged and the interest rate on margin balances would be 2% per annum, and for trades larger than or equal to JPY3.0mn there would be no commission and no interest charged.

81/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Earnings trends and key indicators at Matsui Securities

Key performance indicators FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 Number of accounts ('000) 871 942 1,002 1,056 1,094 1,136 1,184 YoY 3.7% 8.2% 6.4% 5.4% 3.6% 3.8% 4.2% Assets under customers' accounts (JPYbn) 1,716 1,917 2,216 2,064 2,275 2,524 2,340 YoY 30.2% 11.7% 15.6% -6.8% 10.2% 11.0% -7.3% Domestic equity brokerage trading value (JPYbn) 12,776 40,445 36,626 38,725 34,681 35,607 28,415 YoY 57.4% 216.6% -9.4% 5.7% -10.4% 2.7% -20.2% Margin trading balance (JPYmn) 287,591 295,295 319,024 255,177 278,087 331,931 232,829 YoY 74.1% 2.7% 8.0% -20.0% 9.0% 19.4% -29.9% Average margin trading balance (JPYmn) 173,326 314,626 300,657 306,500 241,000 294,400 282,300 YoY 8.4% 81.5% -4.4% 1.9% -21.4% 22.2% -4.1% Earnings (JPYmn) FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 Net operating revenue 19,915 38,738 32,893 33,003 26,499 30,480 25,999 YoY 19.1% 94.5% -15.1% 0.3% -19.7% 15.0% -14.7% Commissions received 14,165 27,349 21,167 21,742 17,253 18,968 14,986 YoY 22.7% 93.1% -22.6% 2.7% -20.6% 9.9% -21.0% Brokerage 13,072 26,180 20,025 20,414 16,260 18,250 14,285 YoY 25.3% 100.3% -23.5% 1.9% -20.3% 12.2% -21.7% % of net operating revenue 65.6% 67.6% 60.9% 61.9% 61.4% 59.9% 54.9% Underwriting and distribution 6 5 0 50 13 14 21 Subscriptin and distribution 0 0 3 0 1 5 27 Other commissions 1,088 1,169 1,139 1,278 979 698 652 Net trading income -26 11 8 6 3 1,201 1,214 YoY - - -27.3% -25.0% -50.0% - 1.1% % of net operating revenue -0.1% 0.0% 0.0% 0.0% 0.0% 3.9% 4.7% Net financial income 5,770 11,374 11,713 11,251 9,239 10,310 9,798 YoY 10.2% 97.1% 3.0% -3.9% -17.9% 11.6% -5.0% % of net operating revenue 29.0% 29.4% 35.6% 34.1% 34.9% 33.8% 37.7% SG&A expenses 9,719 11,648 10,806 11,258 11,560 11,949 12,547 YoY 3.8% 19.8% -7.2% 4.2% 2.7% 3.4% 5.0% % of net operating revenue 48.8% 30.1% 32.9% 34.1% 43.6% 39.2% 48.3% Trading-related 3,356 4,957 4,719 4,674 4,345 4,592 4,408 YoY 8.1% 47.7% -4.8% -1.0% -7.0% 5.7% -4.0% Personnel 1,832 2,075 2,030 2,178 2,227 2,364 2,661 YoY 1.5% 13.3% -2.2% 7.3% 2.2% 6.2% 12.6% System-related 4,338 4,285 3,801 3,778 3,999 4,498 4,946 YoY -5.8% -1.2% -11.3% -0.6% 5.8% 12.5% 10.0% Others 194 331 255 627 990 494 532 YoY -233.8% 70.6% -23.0% 145.9% 57.9% -50.1% 7.7% Operating profit 10,195 27,090 22,087 21,745 14,939 18,532 13,451 YoY 38.5% 165.7% -18.5% -1.5% -31.3% 24.1% -27.4% % of net operating revenue 51.2% 69.9% 67.1% 65.9% 56.4% 60.8% 51.7% Source: Shared Research based on company data

kabu.com securities (TSE1: 8703) The online broker of the Mitsubishi UFJ Financial Group.

The company was established in April 2001 out of a merger between Japan Online Securities—which had an investment from Itochu Corporation (TSE1: 8001)—and the old Sanwa Bank group’s eWing securities. In January 2006, it merged with the former Mitsubishi UFJ Securities subsidiary MeNet Securities. In June 2007, it became consolidated in the Mitsubishi UFJ Financial Group Inc. (TSE1: 8306). It received the highest credit rating A+ among online brokers from the Japan Credit Rating Agency.

The company developed its own computer systems in-house and is the only online broker that belongs to a megabank group. It is deepening its ties with the bank by aggressively targeting bank customers, particularly senior citizens. kabu.com offers senior discounts and leverages the MUFG brand power to appeal to the senior demographics. Customers in their 50s and 60s make up a relatively large portion of its customer base.

In February 2012, kabu.com began offering a margin trading program that limits the settlement date to 13 days and allows for margin trading on securities that can be difficult to obtain. kabu.com boasts the largest number of stocks in the industry that can be traded on negotiable margin trading for short positions.

82/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Earnings trends and key indicators at kabu.com securities

Key performance indicators FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 Number of accounts ('000) 810 869 921 1,002 1,049 1,087 1,118 YoY 5.5% 7.3% 6.0% 8.8% 4.6% 3.7% 2.8% Assets under customers' accounts (JPYbn) 1,472 1,688 2,027 1,921 2,120 2,336 2,205 YoY 28.5% 14.7% 20.1% -5.2% 10.4% 10.2% -5.6% Domestic equity brokerage trading value (JPYbn) 11,211 28,373 27,093 28,676 23,534 27,872 24,292 YoY 43.7% 153.1% -4.5% 5.8% -17.9% 18.4% -12.8% Margin trading balance (JPYmn) 203,300 247,600 289,100 265,800 295,800 335,800 299,300 YoY 54.8% 21.8% 16.8% -8.1% 11.3% 13.5% -10.9% Average margin trading balance (JPYmn) 119,825 213,625 225,308 242,975 208,758 254,192 254,608 YoY 11.0% 78.3% 5.5% 7.8% -14.1% 21.8% 0.2% Earnings (JPYmn) FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 Net operating revenue 11,472 21,286 20,960 22,389 19,041 21,000 18,267 YoY 6.9% 85.5% -1.5% 6.8% -15.0% 10.3% -13.0% Commissions received 7,806 13,362 11,555 12,210 9,842 10,806 8,821 YoY 7.3% 71.2% -13.5% 5.7% -19.4% 9.8% -18.4% Brokerage commissions 6,211 11,340 9,522 9,977 8,032 9,026 7,090 YoY 10.3% 82.6% -16.0% 4.8% -19.5% 12.4% -21.4% % of net operating revenue 54.1% 53.3% 45.4% 44.6% 42.2% 43.0% 38.8% Underwriting and distribution 205 352 293 356 224 192 262 Subscriptoin and distribution 1,389 1,670 1,739 1,876 1,585 1,588 1,468 Net trading income 159 623 1,016 1,347 1,108 1,062 1,040 YoY 297.5% 291.8% 63.1% 32.6% -17.7% -4.2% -2.1% % of net operating revenue 1.4% 2.9% 4.8% 6.0% 5.8% 5.1% 5.7% Net interest income 3,506 7,300 8,388 8,832 7,534 9,038 8,290 YoY 2.7% 108.2% 14.9% 5.3% -14.7% 20.0% -8.3% % of net operating revenue 30.6% 34.3% 40.0% 39.4% 39.6% 43.0% 45.4% SG&A expenses 7,589 9,707 10,839 11,768 11,535 13,066 12,386 YoY -2.2% 27.9% 11.7% 8.6% -2.0% 13.3% -5.2% SG&A as % of net operating revenue 66.2% 45.6% 51.7% 52.6% 60.6% 62.2% 67.8% Trading related expenses 3,458 4,672 5,500 5,908 5,010 5,732 4,761 YoY 0.9% 35.1% 17.7% 7.4% -15.2% 14.4% -16.9% Personnel expenses 920 1,154 1,159 1,166 1,427 1,511 1,566 YoY 1.7% 25.4% 0.4% 0.6% 22.4% 5.9% 3.6% System related expenses 2,931 3,453 3,714 3,847 4,356 5,050 5,045 YoY -7.4% 17.8% 7.6% 3.6% 13.2% 15.9% -0.1% Other expenses 277 424 462 843 739 771 1,010 YoY 5.3% 53.1% 9.0% 82.5% -12.3% 4.3% 31.0% Operating profit 3,882 11,579 10,120 10,621 7,505 7,934 5,881 YoY 30.8% 198.3% -12.6% 5.0% -29.3% 5.7% -25.9% OPM 33.8% 54.4% 48.3% 47.4% 39.4% 37.8% 32.2% Source: Shared Research based on company data

83/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Historical performance 1H FY03/20 results Operating revenue: JPY26.0bn (-1.4% YoY) ▷ Net operating revenue: JPY23.3bn (-2.4% YoY) ▷ Operating profit equivalent: JPY2.2bn (+31.1% YoY) ▷ Pre-tax profit: JPY2.2bn (+19.9% YoY) ▷ Profit attributable to owners of the parent: JPY1.7bn (-3.8% YoY) ▷

Operating revenue of JPY26.0bn (-1.4% YoY) included commission income of JPY11.5bn (-12.4% YoY), with the decline in commission income stemming mainly from falling brokerage commissions at the Japan segment. Trading income of JPY4.3bn was up 32.6% YoY, reflecting increases in trading income at the Japan segment and the Crypto Asset segment. Financial income of JPY9.9bn was up 2.2% YoY, underpinned by increases in interest income at the US segment.

On the expense front, SG&A expenses of JPY21.1bn were down 4.9% YoY, reflecting lower systems-related expenses at the Japan segment and lower expenses at the Crypto Asset segment.

On the earnings front, operating profit equivalent and pre-tax profit were both up despite the drop in operating revenue, as the drop in profit at the Japan segment was offset by a combination of rising profits at the US segment and profits at the Crypto Asset segment in both Q1 and Q2 versus losses in the same quarters last year.

Corporate income tax expense of JPY607mn in 1H FY03/20 compares with JPY153mn in the same period last year, when the company’s tax bill was reduced by JPY387mn as a result of past losses. The rise in corporate income taxes left profit attributable to owners of the parent down versus the same period last year.

Japan segment Overview of results for 1H FY03/20 For 1H FY03/20, the Japan segment reported operating revenue of JPY12.3bn (-13.0% YoY). Commission income of JPY5.5bn was down 20.2% YoY, and trading income of JPY2.3bn was up 11.4% YoY. Financial income of JPY4.5bn finished down 13.5% YoY while financial expenses rose to JPY1.1bn (+4.1% YoY), leaving net financial income at JPY3.4bn (-18.0% YoY).

Net operating revenue (operating revenue after deducting financial expenses and cost of revenue) of JPY11.2bn was down 14.4% YoY. The operating profit equivalent of JPY785mn was down 49.6% YoY, and pre-tax segment profit of JPY886mn was down 50.7% YoY. The decline in revenue and earnings at the Japan segment reflected a decline in trading value of retail investors and lower margin trading balance.

Commission income At the Japan segment, commission income of JPY5.5bn was down 20.2% YoY, with the drop coming primarily from a fall in commissions from stock and ETF trading, which declined 23.2% YoY to JPY4.1bn. Equity trading by retail investors in the market as a whole was down, and a decline in the company’s market share and a decrease in its average commission rate led to a further decline in commissions received.

The daily average for equity trading by retail investors on the Tokyo and Nagoya stock exchanges fell 17.3% YoY to JPY928.0bn. Monex Inc.’s market share of trading by retail investors declined 0.1pp YoY to 5.1% as its average daily stock trading value fell 18.9% YoY to JPY47.5bn. Cash trading value of retail investors was down 27.3% YoY; margin trading value was down 11.6% YoY, and accounted for 58.0% (+4.8pp YoY) of all equity trading by individual investors (Shared Research estimate based on company data).

84/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

In 1H FY02/20, there were a total of 121 trading days (versus 124 trading days in 1H FY02/19) and total equity trades handled by Monex, Inc. came to JPY5.8tn, down 20.9% YoY.

The company’s average commission rate on stock trades declined 0.002pp YoY to 0.073%. The decline in the average commission rate reflected the increase in the proportion of margin trading, which carry lower commission rates. In November 2017, Monex, Inc. revised its commission schedule for margin trades, lowering its commission on transactions with a principal value of JPY100,000 or less from JPY100 to JPY95; on transactions of JPY500,000 or less from JPY450 to JPY190; on transactions of JPY1mn or less from JPY1,500 to JPY355; and on transactions of JPY2mn or less from JPY3,000 to JPY800.

Trading income Net trading income of JPY2.3bn was up 11.4% YoY. According to statistics from the Financial Futures Association of Japan, during April September 2019, OTC forex margin trading declined 8.8% YoY to JPY1,702tn. During the same period, foreign margin – trading through Monex, Inc. rose 104.3% YoY to JPY29.3tn while revenue from forex trading at Monex rose 8.0% YoY to JPY1.8bn. The sharp rise was attributed to the company’s move to tighten its bid-ask spread on all currency pairs, with the spread for the USD/JPY pair narrowing to JPY0.003 (fixed in principle, but conditions apply), which boosted its market share by forex trading volume to 1.69% (versus 0.81% in 1H FY03/19).

Financial income Financial income of JPY4.5bn was down 13.5% YoY, reflecting a decline in the average balance of margin trading and an accompanying decline in income from margin trading. The balance of margin trades outstanding on the Tokyo and Nagoya stock exchanges was JPY3.1tn at the end of Q2 (-16.8% YoY). At Monex, the period-end balance of margin trades outstanding was JPY152.7bn (-14.3% YoY) and the average month-end balance was JPY153.8bn (-20.1% YoY) (Shared Research estimate based on company data).

SG&A expenses SG&A expenses of JPY10.4bn were down 9.6% YoY. Trading-related expenses of JPY2.3bn were down 9.3% YoY, personnel expenses of JPY2.2bn were up 7.7% YoY, and system-related expenses of JPY5.3bn were down 15.8% YoY.

Advertising and promotional spending of JPY483mn was down 24.1% YoY, resulting in lower trading-related expenses. The decline in system-related expenses (which includes real estate and administrative expenses, as well as depreciation) was due in large part to the decline in depreciation following a JPY1.8bn impairment charge against the assets associated with the TradeStation trading platform and changes in the depreciation period in Q4 FY03/19, which brought the depreciation recorded in 1H FY03/20 down 19.6% YoY to JPY2.5bn.

Customer trends As of the end of September 2019, Monex, Inc. had a total of 1,832,530 customer accounts (+2.2% YoY) and total customer assets in custody of JPY4.1tn (-6.9% YoY).

Other developments at Japan segment Reduction of stock lending rate on negotiable margin transactions (no time limit) to 1.10% Starting with trades made on August 9, 2019, Monex, Inc. reduced its (annualized) stock lending rate from 2.00% to 1.10%, matching the lowest stock lending rate offered by industry peers.

Top-five online brokerages: Comparison of stock lending rates on negotiable margin transaction (no time limit) Monex, Inc. SBI Rakuten Matsui Kabu.com Securities Securities Securities Securities Stock lending rate on 1.10% 1.10% 1.10% 2.00% 1.50% negotiable margin transactions

85/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

FX Plus forex margin trading service reduces bid-ask spread on USD/JPY to JPY0.002 FX Plus, the forex margin trading service operated by Monex, Inc., reduced its bid-ask spread on USD/JPY pair trades from JPY0.003 to JPY0.002 effective October 17, 2019. This marks the second time FX Plus has narrowed its bid-ask spread on USD/JPY trades in recent years, the first coming when it reduced its bid-ask spread on all currency pair trades in November 2018.

Industry peer announces plans for commission-free stock trading In October 2019, Charles Schwab, the largest online broker in the US, announced that it was cutting its commission rate for equity, ETF, and option trades on US and Canadian exchanges to zero—a move that was quickly followed by others in the industry.

In Japan, SBI Holdings (TSE1: 8471), the parent company of SBI Securities, the largest online broker in Japan, told the audience at its results briefing for 1H FY03/20 (held in October 2019) that it was looking to cut commission rates on all trades to zero under its three-year plan and that the first step would be zero commissions for trades placed through its proprietary trading system in the after-hours market. SBI Holdings said that before it could make the transition it would first have to expand its revenues sources outside of commissions, boost earnings from increased trading and market liquidity resulting from the move to zero commissions, and cut more costs. Towards this end, SBI Holdings plans to expand its revenue sources outside of commissions by strengthening profitability in areas such as underwriting, M&A-related services, forex trading, and crypto-currencies. As for boosting earnings from increased trading and market liquidity resulting from the move to zero commissions, SBI Holdings plans to expand trading through its proprietary trading system, increase the proportion of trades matched in off-auction markets (including so-called “dark pools”), and also increase its interest income by building up its margin trading balances. On the cost- cutting front, the company plans to use AI technology and robotic process automation (RPA) to help bring down costs.

Monex, Inc. is highly dependent on commission income from equity trading and income from margin trading, with commission income alone accounting for 41.4% of its net operating revenue, second only to Matsui Securities among Japan’s top-five online brokers. The dependence on commission income from stock trading means revenues and earnings at Monex, Inc. could fall considerably if it follows other online brokers in Japan as they move towards commission-free trading over the medium term.

US segment Overview of results for 1H FY03/20 For 1H FY03/20, the US segment reported operating revenue of JPY11.9bn (+8.3% YoY), with commission income coming in at JPY5.7bn (-3.7% YoY), financial income coming in at JPY5.4bn (+23.9% YoY), and net financial income coming in at JPY3.6bn (+38.6% YoY). Net operating revenue of JPY9.9bn was up 7.4% YoY, operating profit equivalent of JPY1.2bn was up 101.5% YoY, and pre-tax segment profit of JPY1.2bn was up 109.5% YoY.

The core business of the US segment is TradeStation Securities, Inc., which is a subsidiary of TradeStation Group, Inc. The main customers of the US segment are active traders, who tend to contribute to earnings under high market volatility resulting in a trading volume hike. The company also captures financial income by managing customer deposits, and an increase in interest rates tends to contribute to earnings.

Commission income declined 3.7% YoY to JPY5.7bn, due to lower other commissions that offset the increase in brokerage commissions. The increase in financial income reflected the rise in short-term interest rates and the accompanying increase in interest income. The average yen/dollar exchange rate during 1H FY03/20 represented a 1.3% appreciation of the yen versus the dollar compared with 1H FY03/19.

On the earnings front, the sharp YoY jump at the operating profit level and below reflected the small increase in SG&A expenses, which went up by only 0.8% even as net operating revenue rose 7.4%.

On a USD basis, operating revenue rose 9.7% YoY to USD109.5mn. Commission income of USD52.7mn was down 2.4% YoY, financial income of USD49.7mn was up 25.5% YoY, and net financial income of USD33.4mn was up 40.5% YoY. Net operating

86/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

revenue of USD91.2mn was up 8.8% YoY, operating profit equivalent of USD11.2mn was up 104.1% YoY, and pre-tax segment profit of USD11.0mn was up 112.1% YoY.

Commission income Commission income of USD52.7mn was down 2.4% YoY; in yen terms, commission income of JPY5.7bn was down 3.7% YoY. Brokerage commissions of USD39.2mn were up 2.6% YoY, in yen terms, brokerage commissions of JPY4.3bn were up 1.3% YoY. As of the end of September 2019, the group’s US segment reported a total of 95,685 active accounts (+15.1 % YoY). The increase in active accounts reflected the US segment’s successful move to attract more casual traders and millennials with help from a logo change and brand makeover. This follows its previous success with attracting new accounts with reduced commission rates on stock and option trades in March 2017 and then on futures trades in August 2017

The VIX volatility index averaged 15.6 (+10.4% YoY). The average number of commissionable contracts or securities trades at the US segment on trading days (i.e., DARTs) rose 13.3% YoY to 83,469 (Shared Research estimate based on company data).

Other fees and commission income totaled USD13.4mn (-14.7% YoY) or, in yen terms, JPY1.5bn (-15.8% YoY), the decline stemming mainly from changes in accounting standards.

Financial income Financial income of USD49.7mn was up 25.5% YoY; in yen terms, financial income of JPY5.4bn was up 23.9% YoY. Contributing factors include higher interest income due to a rise in short-term rates. Financial expenses totaled USD16.3mn (+3.0% YoY) or JPY1.8bn (+1.7% YoY). Net financial income came to USD33.4mn (+40.5% YoY) or JPY3.6bn (+38.6% YoY).

Because most of the net financial income at the US segment comes from interest earned on customer assets (cash) in custody, it tends to vary depending on the balance of customer assets in custody and short-term US interest rates. The rise in net financial income during 1H FY03/20 was due largely to increases in interest received stemming from the rise in short-term interest rates versus the same six-month period last year.

The US segment reported USD5.6bn in customer assets in custody as of the end of September 2019, a decline of 2.3% YoY. This figure included roughly USD2.0bn worth of cash. Prior to November 2018, the US segment used floating-for-fixed interest rate swaps to hedge interest rate risk on roughly USD1.0bn of the customer assets (cash) in custody; after winding down those swaps in November 2018, it has been receiving floating rates on all cash invested since December 2018 and has thus been able to benefit from the rise in short-term interest rates, generating roughly USD1mn more in net financial income per month. This move came on the back of consecutive hikes in the benchmark federal funds rate by the US Federal Reserve in 2018, from 1.50% in January, to 1.75% in March, 2.00% in June, 2.25% in September, and to 2.50% in December. The Fed has since reversed course, lowering its benchmark rate to 2.25% in July 2019 followed by a cut to 2.00% in September and another cut to 1.75% in November 2019.

SG&A expenses SG&A expenses during 1H FY03/20 totaled USD79.9mn (+2.1% YoY) or JPY8.7bn (+0.8% YoY). Of which, trading-related expenses came to USD27.0mn (-2.9% YoY) or JPY2.9bn (-4.2% YoY), personnel expenses came to USD32.7mn (+4.2% YoY) or JPY3.6bn (+2.8% YoY), and systems-related expenses (including real estate expenses, administrative expenses and depreciation) came to USD15.4mn (+8.1% YoY) or JPY1.7bn (+6.7% YoY).

The US segment kept the rise in SG&A spending below the rate of growth in revenues with the help of appropriate cost control measures. A change in accounting standards led to a decline in communication, transportation, and information expenses, but the switch to IFRS 16 (dealing with leases) led to an increase in depreciation charges.

87/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Customer trends As of the end of September 2019, the number of active accounts at TradeStation Securities was 95,685 (+15.1% YoY) and customer assets in custody totaled USD5.6bn (-2.3% YoY). According to the company, the number of new accounts opened in Q2 FY03/20 (July–September 2019) represented a new record high on a quarterly basis.

Other developments at US segment TradeStation Securities launches TSgo in response to move by industry peers to commission-free trading In October 2019, Charles Schwab, the largest online broker in the US, announced that it would be moving to commission-free trading for trades placed via all of its mobile and online platforms for stocks, ETFs, and options trading on US and Canadian exchanges.

TD Ameritrade and E*Trade quickly followed suit with their own commission-free trading packages, as did TradeStation Securities, rolling out its new TSgo service offering commission-free trades for stocks, options, and ETFs placed via one of its online or mobile platforms. Prior to the start of its TSgo service, TradeStation Securities had been charging a flat-rate of USD5.00 per trade for stocks and ETFs, and USD5.00 plus USD0.50 per contract for option trades. Under the TSgo pricing plan, the USD5.00 base commission per trade for options will go to zero but it USD0.50 per contract charge will stay.

Before customers can take advantage of the commission-free trading at TradeStation Securities, they must specifically register for a TSgo account. TradeStation is known for its downloadable online trading platform that is designed with the frequent trader in mind. Once a TradeStation customer registers for a TSgo account they will no longer be able to download the regular TradeStation trade platform that is available to regular account holders.

With respect to the impact on revenues and earnings, we note that in FY03/19 the US segment reported a total of JPY8.6bn in commission income, with JPY2.0bn of this from stock/ETF trading and JPY6.5bn from futures/options trading. The company estimates that the introduction of its new TSgo service will reduce commission income by roughly JPY100mn to JPY200mn in FY03/20. Explaining its calculation, the company said many of its customers are currently using its downloadable TradeStation platform and it takes the extra step of signing up for a TSgo account before they can take advantage of the commission-free trades.

Asia-Pacific segment Overview of results for 1H FY03/20 For 1H FY03/20, the Asia-Pacific segment reported operating revenue of JPY422mn (+1.7% YoY), with commission income coming in at JPY186mn (-11.8% YoY) and financial income coming in at JPY163mn (+23.5% YoY). Net operating revenue of JPY292mn was down 29.3% YoY; the operating loss equivalent of JPY145mn compares with a year-earlier loss of JPY23mn, and the pre-tax segment loss of JPY132mn compares with a year-earlier loss of JPY15mn.

The core businesses of the Asia-Pacific segment are Monex Boom Securities (H.K.) Limited and Monex Securities Australia Pty Ltd.

Operating revenue Commission income was down, hurt by the decline in stock trading value at Monex Boom Securities, but financial income was up.

Financial income Financial income was JPY163mn (+23.5% YoY), and financial expenses was JPY130mn (versus JPY2mn in 1H FY03/19). In this segment the company recorded JPY112mn in financial expenses associated with the credit risk reduction for other financial assets (i.e., loans outstanding). This left the segment with net financial income JPY33mn, down 74.6% versus the same period last year.

SG&A expenses SG&A expenses rose 0.2% YoY to JPY437mn as additional office spending at Monex Boom Securities in Hong Kong offset the cost savings from reductions in SG&A spending at Monex Securities Australia.

88/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Other Equity-method investment income of JPY17mn was up 11.9% YoY, reflecting a profit booked from a joint venture in mainland China.

Crypto Asset segment Overview of results for 1H FY03/20 For 1H FY03/20, the Crypto Asset segment reported operating revenue of JPY2.1bn (+65.2% YoY), with commission income coming in at JPY153mn (+9.3% YoY) and trading income coming in at JPY1.9bn (+72.2% YoY). The segment reported a pre-tax profit of JPY151mn versus a year-earlier loss of JPY847mn.

The core business of the Crypto Asset segment is Coincheck, which was included in consolidated results starting in April 2018. After a long stretch when it was forbidden to open any new user accounts and was restricted to only offering a few services, Coincheck was given the go-ahead by regulatory authorities to begin accepting new accounts and resume trading in some cryptocurrencies in October 2018, was subsequently given permission to handle transactions in all cryptocurrencies at the end of November 2018, and finally completed its registration as a cryptocurrency exchange operator in January 2019. In June 2019, Coincheck began handling Monacoin, bringing the number of different cryptocurrencies handled to ten.

The YoY rise in operating revenues reflects increases in cryptocurrency trading, increases in the number of registered users, and increases in trading income from its operation of a cryptocurrency exchange as more cryptocurrencies were made available for trading. In addition to the revenue growth, earnings were further bolstered by reductions in SG&A spending, enough so to put the Crypto Asset segment in the black.

Commission and trading income Commissions included withdrawal and remittance fees and commissions from the cryptocurrency exchange. Trading income included income from buying and selling on the cryptocurrency exchange. Trading income grew along with the increase in cryptocurrency trading, bolstered by a combination of greater domestic trading of cryptocurrencies, increases in the number of registered users, and the addition of more cryptocurrencies to the company’s cryptocurrency exchange.

Customer account trends As of the end of September 2019, Coincheck had a total of 1.93mn registered users (versus 1.70mn at the end of September 2018), of which roughly 920,000 were verified accounts (i.e., accounts whose real owner had been confirmed).

Customer assets in custody of JPY78.5bn at the end of September 2019 were down 26.4% YoY but up 18.0% versus the end of FY03/19.

SG&A expenses SG&A expenses of JPY1.9bn were down 13.9% YoY, with cost savings from reductions in real estate expenses resulting from office mergers offsetting increases in advertising and promotional spending that went along with the addition of new accounts.

Investment segment For 1H FY03/20, the Investment segment reported operating revenue of JPY154mn (-51.1% YoY), with financial income coming in at JPY154mn (-51.1% YoY). The pre-tax segment profit of JPY129mn was down 60.8% versus the same period last year.

The Investment segment is comprised of Monex Ventures, Inc. and MV1 Investment Limited Partnership.

Results for Q2 FY03/20 (July–September 2019)

Operating revenue: JPY12.9bn (+0.7% YoY, -2.1% QoQ) ▷

89/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Net operating revenue: JPY11.4bn (-0.8% YoY, -4.1% QoQ) ▷ Operating profit equivalent: JPY951mn (+73.2% YoY, -21.7% QoQ) ▷ Pre -tax profit: JPY999mn (+42.7% YoY, -16.5% QoQ) ▷ Profit attributable to owners of the parent: JPY830mn (+51.2% YoY, -2.2% QoQ) ▷

Q2 operating revenue of JPY12.9bn was up 0.7% YoY and down 2.1% QoQ. Commission income of JPY5.7bn was down 9.4% YoY and up 0.2% QoQ, the YoY decline due in large part to falling commissions at the Japan segment.

Trading income of JPY2.0bn was up 37.5% YoY and down 15.4% QoQ. The YoY rise reflected increases in trading income at the Crypto Asset segment. The QoQ decline reflected a 39.7% decline in trading income at the Crypto Asset segment that offset an 11.1% increase in trading income at the Japan segment.

Financial income of JPY5.0bn was up 3.6% YoY and up 1.8% QoQ, the YoY gains underpinned by increases in interest income at the US segment.

On the expense front, Q2 SG&A expenses of JPY10.4bn were down 4.5% YoY and down 2.1% QoQ, reflecting lower systems- related expenses at the Japan segment and lower personnel and administrative expenses at the Crypto Asset segment.

On the earnings front, Q2 operating profit equivalent, pre-tax profit, and profit attributable to owners of the parent were up as the drop in earnings at the Japan segment was offset by a combination of rising profits at the US segment and the Crypto Asset segment’s move into the black versus losses in the same quarter last year.

Japan segment Overview of results for Q2 FY03/20 (July-September 2019) For Q2 FY03/20 (July-September 2019), the Japan segment reported operating revenue of JPY6.2bn (-11.3% YoY, +1.3% QoQ). Commission income of JPY2.7bn was down 17.8% YoY and up 0.3% QoQ, trading income of JPY1.2bn was up 6.7% YoY and up 11.1% QoQ, and financial income of JPY2.2bn was down 10.8% YoY and up 9.8% QoQ. With financial expenses coming in at JPY572mn (+11.3% YoY, +9.8% QoQ) and net financial income came to JPY1.6bn (-16.6% YoY, -5.3% QoQ).

Net operating revenue of JPY5.6bn was down 13.1% YoY and up 0.6% QoQ. The operating profit equivalent of JPY381mn was down 49.9% YoY and down 5.7% QoQ, and pre-tax segment profit of JPY429mn was down 48.8% YoY and down 6.1% QoQ.

The YoY drop in revenue and earnings was due to a decline in trading value of retail investors and falling margin trading balances. The QoQ increase in operating revenue was driven by increases in trading income but segment earnings still finished down as a result of higher depreciation charges.

Commission income At the Japan segment, Q2 commission income of JPY2.7bn was down 17.8% YoY and up 0.3% QoQ, with the YoY drop coming primarily from lower commissions from stock and ETF trading, which at JPY2.1bn were down 19.9% YoY and up 0.4% QoQ.

Monex Inc. managed to hold its market share steady but equity trading by retail investors in the market as a whole was down; commission income was further depressed by a decline in its average commission rate.

The average daily equity trading by retail investors on the Tokyo and Nagoya stock exchanges of JPY895.1bn was down 17.1% YoY and 7.0% QoQ. Monex Inc.’s 5.2% market share of trading by retail investors was flat YoY and up 0.1pp QoQ, but its average daily stock trading value of JPY46.2bn was down 17.4% YoY and 5.7% QoQ. The cash trading value was down 24.5% YoY and 5.6% QoQ, and margin trading value was down 11.4% YoY and 5.8% QoQ. The proportion of all stock trades at Monex Inc. accounted for by margin trades was 58.0%, up 5.6pp YoY and 0.1pp QoQ (Shared Research estimate based on company data).

90/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

There were a total of 62 trading days in Q2 FY03/20 (62 days in Q2 FY03/19 and 59 days in Q1 FY03/20). Trading value of JPY2.9tn handled by Monex, Inc. was down 17.4% YoY and 0.9% QoQ.

Monex Inc.’s average commission rate on stock trades was 0.073% (-0.002pp YoY, +0.001pp QoQ). The YoY decline reflected an increase in the proportion of trades handled accounted for by margin trades, which carry lower commission rates. In November 2017, Monex, Inc. revised its commission schedule for margin trades, lowering its commission on transactions with a principal value of JPY100,000 or less from JPY100 to JPY95; on transactions of JPY500,000 or less from JPY450 to JPY190; on transactions of JPY1mn or less from JPY1,500 to JPY355; and on transactions of JPY2mn or less from JPY3,000 to JPY800.

Trading income Net trading income of JPY1.2bn was up 6.7% YoY and 11.1% QoQ. According to statistics from the Financial Futures Association of Japan, during the three-month period from July through September 2019, OTC forex margin trading of JPY940tn was up 8.7% YoY and 23.3% QoQ. During the same period, foreign margin currency trading through Monex, Inc. hit JPY16.5tn, up 137.8% YoY and 28.7% QoQ, while revenue from forex trading at Monex totaled JPY932mn, up 3.9% YoY and 11.0% QoQ.

The rise in forex trading at Monex Inc. was attributed to its move to tighten bid-ask spreads on all currency pairs, including the narrowing of the spread for the USD/JPY pair to JPY0.003 (fixed in principle, but conditions apply).

Financial income Q2 financial income of JPY2.2bn was down 10.8% YoY and 1.8% QoQ, reflecting a decline in the average balance of margin trading accounts and an accompanying decline in income from margin trading.

The balance of margin trades outstanding on the Tokyo and Nagoya stock exchanges was JPY3.1tn (-16.8% YoY, +0.9% QoQ). At Monex, Inc., the balance of margin trades outstanding was JPY152.7bn (-14.3% YoY, +0.2% QoQ), and the estimated average month-end balance of margin trades outstanding was JPY155.8bn (-14.4% YoY, +2.7% QoQ) (Shared Research estimate based on company data).

SG&A expenses Q2 SG&A expenses of JPY5.2bn were down 8.2% YoY and up 1.0% QoQ. Trading-related expenses of JPY1.2bn were down 1.2% YoY and up 2.6% QoQ, personnel expenses of JPY1.1bn were up 10.8% YoY and 2.2% QoQ, and system-related expenses of JPY2.7bn were down 15.0% YoY and up 4.4% QoQ.

The YoY decline in system-related expenses (including real estate expenses, administrative expenses, and depreciation) was due in large part to the decline in depreciation following the JPY1.8bn impairment charge against assets associated with the TradeStation trading platform and changes in the depreciation period in Q4 FY03/19, which brought the depreciation recorded in Q2 FY03/20 down 16.6% YoY to JPY1.3bn.

US segment Overview of results for Q2 FY03/20 (July-September 2019) For Q2 FY03/20 (July–September 2019), the US segment reported operating revenue of JPY6.0bn (+8.2% YoY, +1.5% QoQ), with commission income coming in at JPY2.9bn (flat YoY and QoQ), financial income coming in at JPY2.7bn (+15.8% YoY, -0.1% QoQ), and net financial income coming in at JPY1.8bn (+26.8% YoY, -2.9% QoQ). Net operating revenue of JPY5.0bn was up 6.6% YoY and down 1.4% QoQ, operating profit equivalent of JPY589mn was up 56.2% YoY and down 7.0% QoQ, and pre-tax segment profit of JPY574mn was up 59.0% YoY and down 7.4%.

USD-based results Operating revenue of USD55.6mn was up 12.0% YoY and 3.0% QoQ. Commission income of USD26.6mn was up 3.6% YoY and 1.9% QoQ, and financial income of USD25.0mn was up 19.7% YoY and 1.4% QoQ. Net operating revenue of USD45.6mn was up 10.3% YoY and 0.1% QoQ, operating profit equivalent of USD5.5mn was up 61.1% YoY and down 5.4% QoQ, and pre-tax segment profit of USD5.3mn was up 63.6% YoY and down 5.9% QoQ.

91/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Commission income Q2 commission income totaled USD26.6mn (+3.6% YoY, +1.9% QoQ) or JPY2.9bn (flat YoY and QoQ). Brokerage commissions of USD19.7mn were up 10.7% YoY and 1.4% QoQ; in yen terms, the comparable figure of JPY2.1bn was up 6.8% YoY and down 0.2% QoQ. The VIX volatility index averaged 16.0 (+24.1% YoY, +5.1% QoQ). The average number of commissionable contracts or securities trades at the US segment on trading days (i.e., DARTs) of 87,131 was up 25.7% YoY and 9.2% QoQ (Shared Research estimate based on company data). Other fees and commission income totaled USD6.8mn (-12.7% YoY, +3.3% QoQ) or JPY737mn (-15.7% YoY, +1.8% QoQ).

Financial income Financial income of USD25.0mn was up 19.7% YoY and up 1.4% QoQ; in yen terms, financial income of JPY2.7bn was up 15.8% YoY and down 0.1% QoQ. Contributing factors include higher interest income due to a rise in short-term rates. Financial expenses totaled USD8.4mn (+2.2% YoY, +7.3% QoQ) or JPY909mn (-1.1% YoY, +5.7% QoQ). Net financial income came to USD16.6mn (+31.0% YoY, -1.4% QoQ) or JPY1.8bn (+26.8% YoY, -2.9% QoQ). In Q2, the US segment reported roughly USD14mn in net interest income from funds invested versus roughly USD15mn in Q1.

Most of the net financial income at the US segment comes from interest earnings on asset (cash) in custody, so it tends to vary depending on the balance of customer assets in custody and short-term US interest rates. The YoY rise in net financial income during Q2 FY03/20 was due largely to increases in interest received stemming from the rise in short-term interest rates.

As of the end of Q2 FY03/20 (September 2019), customer assets in custody at the US segment totaled USD5.6bn (-2.3% YoY, +1.3% QoQ). This figure included roughly USD2.0bn worth of cash. Prior to November 2018, the US segment used floating-for- fixed interest rate swaps to hedge interest rate risk on roughly USD1.0bn of the customer assets (cash) in custody; after winding down those swaps in November 2018, it has been receiving floating rates on all cash investments since December 2018 and has thus been able to benefit from the rise in short-term interest rates, generating roughly USD1mn more in net financial income per month. This move came on the back of consecutive hikes in the benchmark federal funds rate by the US Federal Reserve in 2018, from 1.50% in January, to 1.75% in March, 2.00% in June, 2.25% in September, and to 2.50% in December. The Fed has since reversed course, lowering its benchmark rate to 2.25% in July 2019 followed by a cut to 2.00% in September and another cut to 1.75% in November 2019.

SG&A expenses Q2 SG&A expenses totaled USD40.1mn (+5.8% YoY, +0.9% QoQ) or JPY4.3bn (+2.2% YoY).

Of this, trading-related expenses came to USD13.6mn (+0.4% YoY, +0.9% QoQ) or JPY1.5bn (+0.8% YoY, -0.7% QoQ), personnel expenses came to USD16.3mn (+6.4% YoY, -0.5% QoQ) or JPY1.8bn (+2.7% YoY, -2.0% QoQ), and system-related expenses (including real estate expense, administrative expenses and depreciation) came to USD7.9mn (10.3% YoY, 5.8% QoQ) or JPY853mn (+6.5% YoY, +4.2% QoQ).

On a YoY comparison basis, the US segment kept the rise in SG&A spending (+5.8%) below the rate of growth in operating revenues (+12.0%) with the help of appropriate cost control measures. A change in accounting standards led to a decline in communication, transportation, and information expenses, but the switch to IFRS 16 (dealing with leases) led to higher depreciation charges.

On a QoQ comparison basis, investments in new business development resulted in higher depreciation charges.

Crypto Asset segment Overview of results for Q2 FY03/20 (July-September 2019) For Q2 FY03/20, the Crypto Asset segment reported operating revenue of JPY802mn (+154.6% YoY, -37.1% QoQ), with commission income coming in at JPY78mn (-69.6% YoY, +4.0% QoQ) and trading income at JPY724mn (+169.1% YoY, -39.7%

92/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

QoQ). The segment reported a pre-tax profit of JPY9mn (versus a loss of JPY588mn in Q2 FY03/19 and profit of JPY142mn in Q1 FY03/20).

On a YoY comparison basis, the rise in operating revenues and earnings reflected increases in cryptocurrency trading, increases in the number of registered users, and increases in trading profits from its operation of a cryptocurrency exchange as more cryptocurrencies were made available for trading.

On a QoQ comparison basis, the decline in operating revenue and earnings was due largely to a pullback in cryptocurrency prices after a sharp run-up in the previous quarter. The segment was still able to finish Q2 in the black, though, thanks to cost- cutting that pushed SG&A spending down 22.1% YoY and 28.6% QoQ to JPY805mn.

Commission and trading income Commissions include withdrawal and remittance fees as well as commissions from the cryptocurrency exchange. Trading income includes income from buying and selling on the cryptocurrency exchange. On a YoY comparison basis, trading income grew along with the increase in cryptocurrency trading, bolstered by a combination of greater domestic trading of cryptocurrencies, increases in the number of registered users, and the addition of more cryptocurrencies to the company’s cryptocurrency exchange.

Customer account trends As of the end of September 2019, Coincheck had a total of 1.93mn registered users (versus 1.70mn at the end of September 2018 and 1.88mn at the end of June 2019), of which roughly 920,000 were verified accounts (i.e., accounts whose real owner had been confirmed).

At the end of September 2019, customer assets in custody was JPY78.5bn (-25.4% YoY, -30.8% QoQ).

SG&A expenses Q2 SG&A expenses of JPY805mn were down 22.1% YoY and 28.6% QoQ, with cost savings from reductions in personnel and systems-related expenses resulting from office mergers and personal reduction offsetting increases in advertising and promotional spending that went along with the addition of new accounts. The company indicated that it expects to further reduce SG&A spending at the Crypto Asset segment in 2H.

Thanks to lower SG&A spending, the Crypto Asset segment was able to log in second consecutive quarter in the black with the pre-tax profit of JPY9mn.

Q1 FY03/20 results

Results for the Q1 FY03/20 (April–June 2019)

Operating revenue: JPY13.2bn (-3.4% YoY, +9.1% QoQ) ▷ Net operating revenue: JPY11.9bn (-3.9% YoY, +7.8% QoQ) ▷ Operating profit equivalent: JPY1.2bn (+10.2% YoY, versus loss of JPY273mn in Q4 FY03/19) ▷ Pre-tax profit: JPY1.2bn (+5.8% YoY, versus loss of JPY1.4bn in Q4 FY03/19) ▷ Profit attributable to owners of the parent: JPY849mn (-29.0% YoY, versus loss of JPY1.5bn in Q4 FY03/19) ▷

Operating revenue of JPY13.2bn was down 3.4% YoY and up 9.1% QoQ. Included in operating revenue was commission income of JPY5.7bn, which was down 15.3% YoY and 0.4% QoQ, with the decline stemming mainly from falling commissions at the Japan segment. Trading income of JPY2.3bn was up 28.6% YoY and 59.2% QoQ, reflecting trading gains at the Japan segment and also at the Crypto Asset segment. Financial income of JPY4.9bn was up 0.8% YoY and 5.3% QoQ, due mainly to increases in interest income at the US segment.

93/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

On the expense front, SG&A expenses of JPY10.7bn were down 5.2% YoY and 5.5% QoQ, reflecting cuts in advertising and promotional spending and also lower systems-related expenses at the Japan segment.

On the earnings front, operating profit equivalent and pre-tax profit were both up YoY and QoQ despite the drop in operating revenue, with the earnings at the Japan segment down YoY and up QoQ, earnings at the US segment up YoY and down QoQ, and the Crypto Asset segment reporting a profit versus a year-earlier loss with the profit up QoQ.

Corporate income tax expense of JPY392mn in Q1 FY03/20 compares with –JPY36mn in Q1 FY03/19, when the company’s tax bill was reduced by JPY387mn as a result of past losses. With the rise in corporate income taxes, net after-tax profit finished the quarter down YoY even though pre-tax profit was up.

Japan segment In Q1 FY03/20, Japan segment operating revenue of JPY6.1bn was down14.7% YoY and up 0.4% QoQ. Commission income of JPY2.7bn was down 22.4% YoY and 2.8% QoQ, and trading income of JPY1.1bn was up 17.1% YoY and down 4.7% QoQ. Financial income of JPY2.3bn was down 15.9% YoY and up 7.5% QoQ, with financial expenses coming in at JPY521mn (-2.8% YoY, +16.8% QoQ) and net financial income coming in at JPY1.7bn (-19.2% YoY, +5.0% QoQ).

Net operating revenue (operating revenue after deducting financial expenses and cost of revenue) of JPY5.6bn was down 15.6% YoY and 0.9% QoQ. The operating profit equivalent of JPY404mn was down 49.4% YoY and up versus a Q4 FY03/19 loss of JPY51mn, and pre-tax profit of JPY457mn was down 52.3% YoY and down versus a Q4 FY03/19 profit of JPY1.7bn.

On a YoY comparison basis, the drop in net operating revenue and operating profit equivalent reflected a decline in equity trading value by individual investors and lower margin account balances. On a QoQ comparison basis, net operating revenue was essentially flat but earnings at all levels were higher thanks to reduced depreciation.

Commission income At the Japan segment, commissions received totaled JPY2.7bn (-22.4% YoY, -2.8% QoQ), with the drop coming primarily from a fall in commissions from stock and ETF trading, which at JPY2.1bn was down 26.2% YoY and 3.9% QoQ.

Equity trading by retail investors in the market as a whole was down, and a decline in the company’s market share and a decrease in its average commission rate led to a further decline in commissions received.

The average daily equity trading by retail investors on the Tokyo and Nagoya stock exchanges in the April–June 2019 quarter was JPY962.5bn, down 17.3% YoY and 9.9% QoQ. Monex Inc.’s 5.1% market share of trading by retail investors was down 0.1pp YoY and up 0.1pp QoQ, and its average daily stock trading value of JPY49.0bn down 20.1% YoY and 8.1% QoQ. A breakdown of the commissionable trades handled by the Japan segment during the quarter shows trading in cash equities down 29.6% YoY and 10.5% QoQ, margin trading down 11.5% YoY and 6.5% QoQ; margin trades accounted for 58.1% of all trades handled by the Japan segment, an increase of 5.6pp YoY and 1.1pp QoQ (estimate by Shared Research based on company data).

The average commission rate on stock trading of 0.072% was down 0.002pp YoY and up 0.001pp QoQ, with the YoY decline stemming in large part from the increase in the proportion of trades coming from margin trading, which carry lower commission rates. Monex, Inc. reduced commissions for margin trades in November 2017, introducing the following fee structure: For trades with a principal value of JPY100,000 or less, the commission was lowered from JPY100 to JPY95; for trades with larger than JPY100,000 but less than or equal to JPY500,000, the commission was cut from JPY450 to JPY190; for trades larger than JPY500,000 but less than or equal to JPY1,000,000, the commission was cut from JPY1,500 to JPY355; and for trades larger than JPY1,000,000 but less than or equal to JPY2,000,000, the commission was cut from JPY3,000 to JPY800.

Trading income Net trading income of JPY1.1bn was up 17.1% YoY and down 4.7% QoQ.

94/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

According to statistics from the Financial Futures Association of Japan, over-the-counter forex trading during the April–June 2019 quarter slumped to JPY762tn, down 23.9% YoY and 16.6% QoQ. Monex, Inc. handled JPY12.8tn in forex trades, up 73.0% YoY and down 11.9% QoQ, generating revenue of JPY831mn (+12.9% YoY, -11.9% QoQ). The sharp YoY increase in forex trades handled was attributed to the company’s move to tighten its bid-ask spread on all currency pairs, and the spread for the USD/JPY pair to JPY0.003 (fixed in principle, but conditions apply).

Financial income Financial income of JPY2.3bn was down 15.9% YoY and up 5.0% QoQ. The YoY drop in financial income reflected a decline in the average balance of margin trading accounts and an accompanying decline in income from margin trading. The QoQ increase reflected a rise in dividend income received from shares held in connection with its stock lending operations.

The balance of margin trading accounts at the end of Q1 FY03/20 was JPY152.4bn (-24.1% YoY, -2.9% QoQ); the average month-end balance of margin trading accounts at Monex, Inc. of JPY151.7bn was down 25.2% YoY and 3.2% QoQ (estimated by Shared Research using company data). This compares with the Tokyo and Nagoya stock exchanges, where the combined balance of margin trades of JPY3.0tn was down 24.9% YoY and 4.7% QoQ.

SG&A expenses SG&A expenses of JPY5.2bn were down 11.0% YoY and 8.8% QoQ.

Trading-related expenses of JPY1.1bn were down 16.3% YoY and 10.4% QoQ, personnel-related expenses of JPY1.1bn were up 4.7% YoY and 9.7% QoQ, system-related expenses (including all related rents, operational expenses, and depreciation) of JPY2.6bn were down 16.6% YoY and 16.6% QoQ, and advertising/promotional spending of JPY236mn were down 39.2% YoY and 19.7% QoQ. A large proportion of SG&A expenses is comprised of system-related expenses, which include all related rents, operational expenses, and depreciation. The 16.6% YoY and QoQ decline in system-related expenses in Q1 reflects greatly reduced depreciation charges of JPY1.2bn (-22.7% YoY, -23.0% QoQ) following the JPY1.8bn write-down in Q4 FY03/19 of fixed assets associated with TradeStation (Japanese equities trading tool) as a result of changes in its depreciable life.

Customer trends As of the end of June 2019, Monex, Inc. had a total of 1,825,215 customer accounts (+2.5% YoY) and total customer assets in custody of JPY4.0tn (-6.3% YoY).

US segment For Q1 FY03/20, the US segment reported operating revenue of JPY5.9bn (+8.4% YoY, +3.3% QoQ), consisting of JPY2.9bn in commissions received (-7.1% YoY, +0.7% QoQ), JPY2.7bn in financial income (+33.1% YoY, +6.6% QoQ), and net financial income of JPY1.8bn (+52.4% YoY, +1.0% QoQ). Net operating revenue of JPY5.0bn was up 8.2% YoY and 0.2% QoQ, operating profit equivalent of JPY633mn was up 175.2% YoY and down 16.0% QoQ, and pre-tax segment profit of JPY620mn was up 196.7% YoY and down 17.2% QoQ.

The core business of the US segment is TradeStation Securities, Inc., which is a subsidiary of TradeStation Group, Inc. The main customers of the US segment are active traders, who tend to contribute to earnings under high market volatility resulting in a trading volume hike. The company also captures financial income by managing customer deposits, and an increase in interest rates tends to contribute to earnings.

The decline in YoY commission income was due mainly to a decline in brokerage commissions. The increase in financial income reflected the rise in short-term interest rates and the accompanying increase in interest income. The average yen/dollar exchange rate during Q1 represented a 0.8% depreciation of the yen versus the dollar compared with Q1 FY03/19 and 0.8% appreciation of the yen against the dollar compared with Q4 FY03/19.

On the earnings front, the YoY gains at the operating profit level and below are attributable to top-line growth and a 0.6% YoY decrease in SG&A expenses. The QoQ decline in operating profit and below reflected a 3.1% QoQ increase SG&A expenses.

95/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

On a USD basis, operating revenue of USD53.9mn was up 7.5% YoY and 4.0% QoQ. Commission income of USD26.1mn was down 7.8% YoY and up 1.4% QoQ. Financial income of USD24.7mn was up 32.1% YoY and 7.4% QoQ, and net financial income of JPY16.8mn was up 51.2% YoY and 1.8% QoQ. Net operating revenue of USD45.6mn was up 7.3% YoY and 0.9% QoQ, operating profit equivalent of USD5.8mn was up 173.0% YoY and down 15.5% QoQ, and pre-tax profit of USD5.7mn was up 194.3% YoY and down 16.6% QoQ.

Commission income Commissions received totaled USD26.1mn (-7.8% YoY, +1.4% QoQ) or JPY2.9bn (-7.1% YoY, +0.7% QoQ) on a yen basis. Brokerage commissions of USD19.5mn were down 4.4% YoY and up 7.6% QoQ and, after converting to yen, the comparable figure of JPY2.1bn was down 3.7% YoY and up 6.9% QoQ.

As of the end of June 2019, the company reported a total of 93,185 active accounts (+17.5% YoY, +2.9% QoQ). During the period the company’s customer base expanded to include more casual traders and millennials following the change in its logo and other efforts to refresh its brand. Changes in its commission rates for stock and option trading in March 2017 and for futures trading in August 2017 also led to increases in new account openings.

The VIX volatility index averaged 15.2, down 1.0% YoY and 7.8% QoQ). The decline in the VIX volatility index notwithstanding, the company said intraday market volatility actually increased during the quarter, and thus the average number of commissionable contracts or securities trades at the US segment on trading days (i.e., DARTs) rose 2.4% YoY and 1.4% QoQ to 79,778 (estimated by Shared Research using company data).

Financial income Financial income of USD24.7mn was up 32.1% YoY and 7.4% QoQ, financial expenses of USD7.8mn were up 3.8% YoY and 21.8% QoQ, and net financial income of USD16.8mn was up 51.2% YoY and 1.8% QoQ; In yen terms, financial income of JPY2.7bn was up 33.1% YoY and 6.6% QoQ, financial expenses of JPY860mn were up 4.8% YoY and 21.1% QoQ, and net financial income of JPY1.8bn was up 52.4% YoY and 1.0% QoQ.

Changes in net financial income at the US segment are driven largely by changes in interest income from funds invested, which varies depending on changes in customer assets (cash) under custody and changes in short-term US interest rates. The sharp YoY jump in net financial income in Q1 FY03/20 was driven in large part by the rise in short-term interest rate versus a year earlier and the accompanying increase in interest income.

As of the end of June 2019, the US segment reported customer assets in custody of JPY5.6bn, up 1.6% YoY and 0.4% QoQ. The increase in customer assets in custody was due in large part to an increase in the number of active accounts, which pushed cash held in accounts up to roughly USD2.0bn. Prior to November 2018, the company invested roughly USD1.0bn of cash held in customer accounts using fixed-for-floating interest rate swaps. It closed out those swaps in November 2018, however, and since December 2018 has been accepting floating interest rates on its cash investments and, by making this switch, has increased its net financial income by roughly USD1.0mn a month compared with before the switch. This move came on the back of consecutive rate hikes by the US Federal Reserve in 2018: from 2.00% in June (+0.75bp YoY) to 2.25% in September and 2.50% in December. The Fed reversed course in July this year, lowering its benchmark rate to 2.25%.

SG&A expenses SG&A expenses of USD39.8mn were down 1.4% YoY and up 3.4% QoQ; in yen terms, expenses of JPY4.4bn were down 0.6% YoY and up 3.1% QoQ.

Under SG&A expenses, trading-related expenses of USD13.5mn were down 9.4% YoY and 2.6% QoQ, personnel-related expenses of USD16.4mn were up 2.1% YoY and 9.5% QoQ, and systems-related expenses (including all related rents, operating costs, and depreciation) of USD7.5mn were up 5.9% YoY and 1.2% QoQ. In yen terms, trading-related expenses of JPY1.5bn

96/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

were down 8.6% YoY and 3.3% QoQ, personnel-related expenses of JPY1.8bn were up 2.9% YoY and 8.8% QoQ, and systems- related expenses of JPY819mn were up 6.9% YoY and 0.5% QoQ.

The YoY decline in SG&A expenses even as top-line revenues rose reflected the company’s exercise of proper cost-control measures; changes in accounting standards led to the reduction in spending on communications, shipping, and data fees. Depreciation charges were higher owing to the application of IFRS 16; miscellaneous SG&A expenses were also up.

The QoQ rise in SG&A expenses reflects increases in trading commissions payable and exchange membership fees stemming from the increase in the volume of futures trades handled, and also increases in personnel-related spending. Changes in accounting standards led to QoQ reductions in spending on communications, shipping, and data fees.

Customer trends As of the end of June 2019, the number of active accounts at TradeStation Securities was 93,185 (+17.5% YoY, +2.9% QoQ) and customer assets in custody totaled USD5.6bn (+1.6% YoY, +0.4% QoQ).

Crypto Asset segment The Crypto Asset segment reported Q1 FY03/20 operating revenue of JPY1.3bn (+35.4% YoY, +311.3% QoQ), comprised of JPY75mn in commission income (-20.2% YoY, +275.0% QoQ) and JPY1.2bn in trading income (+41.5% YoY, +313.8% QoQ).

The segment reported a pre-tax profit (segment profit) of JPY142mn versus a loss of JPY259mn in Q1 FY03/19 and loss of JPY560mn in Q4 FY03/19.

The core business of the Crypto Asset segment is Coincheck, which was included in consolidated results starting in April 2018. After a long stretch when it was forbidden to open any new user accounts and was restricted to only offering a few services, Coincheck was given the go-ahead by regulatory authorities to begin accepting new accounts and resume trading in some cryptocurrencies in October 2018, was subsequently given permission to handle transactions in all cryptocurrencies at the end of November 2018, and finally completed its registration as a cryptocurrency exchange operator in January 2019. In June 2019, Coincheck began handling Monacoin, bringing the number of different cryptocurrencies handled to ten.

The YoY and QoQ rise in operating revenue at the Crypto Asset segment reflects increases in cryptocurrency trading income (profits from buying and selling on the cryptocurrency exchange) as trading volumes handled increased amid a general increase in cryptocurrency trading and increases in the number of registered users. In addition to the top-line growth, earnings were further bolstered by reductions in SG&A spending, enough so to put the Crypto Asset segment in the black for the quarter.

Commission and trading income Commission income includes withdrawal and remittance fees and commissions from the cryptocurrency exchange. Trading income included income from buying and selling on the cryptocurrency exchange. Trading income grew as trading volumes handled by Coincheck increased along with the increase in cryptocurrency trading on domestic exchanges and increases in the number of registered users. According to the Japanese-language Bitcoin information website, during the April–June 2019 quarter domestic Bitcoin exchanges saw a total of JPY3.4tn worth of Bitcoin trading, down 15.5% YoY but up 141.6% QoQ.

Number of accounts As of end-June 2019, the Coincheck reported a total of 1.88mn registered users versus 1.70mn in Q1 FY03/19 and 1.75mn quartering Q4 FY03/19. The number of accounts for which the identity of the owners has been confirmed totals roughly 0.90mn. At the end of June 2019, customer assets in custody totaled JPY113.6bn. While this was down 7.7% versus the end of Q1 FY03/19, it represents an increase of 70.7% over the end of FY03/19.

SG&A expenses SG&A expenses of JPY1.1bn were down 6.9% YoY and 17.9% QoQ, with cost savings from reductions in professional fees offsetting increases in advertising and promotional spending that went along with the addition of new accounts. The larger QoQ

97/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

decline in SG&A expenses reflects staff and office space reductions as well as reductions in systems-related expenses. The company said that it expects to be able to continue reducing SG&A spending going into the second half of the year.

As a result of the cuts in SG&A spending, the Crypto Asset segment reported a pre-tax profit (segment profit) of JPY142mn, marking the first profitable quarter since becoming a part of the group.

Full-year FY03/19 results

Results for the full-year FY03/19

Operating revenue: JPY52.2bn (-2.7% YoY) ▷ Net operating revenue: JPY47.4bn (-3.5% YoY) ▷ Operating profit equivalent: JPY2.7bn (-70.7% YoY) ▷ Pre-tax profit: JPY1.8bn (-79.3% YoY) ▷ Profit attributable to owners of the parent: JPY1.2bn (-82.5% YoY) ▷ Operating revenue of JPY52.2bn (-2.7% YoY) included JPY25.7bn in commissions received (-11.8% YoY), with the decline in commission income stemming from falling commissions at the Japan segment. Trading income of JPY6.5bn was up 67.2% YoY, the increase due in part to the addition of Coincheck, Inc. to consolidated results. Financial income was JPY19.2bn (-0.6% YoY). Despite an increase in interest income in the US segment, financial income fell because the company booked valuation gains on stocks held in the Investment segment in FY03/19 (versus gains on the sale of stocks held booked in FY03/18).

On the expense front, SG&A expenses were JPY44.7bn (+12.1% YoY); this includes expenses stemming from the addition of Coincheck to consolidated results.

The difference in operating profit equivalent and pre-tax profit owes chiefly to net other expenses of JPY938mn (JPY1.4bn other revenue – JPY2.2bn other expenses). The Crypto Asset segment booked net other revenue of JPY960, mainly on valuation gains from changes in the fair value estimate of amounts in arrears whose value is subject to conditions. The Japan segment posted net other expenses of JPY1.8bn, owing largely to an impairment loss on fixed assets linked to the Japanese equities trading tool TradeStation following a revaluation of their fair market value.

Corporate income tax expense of JPY761mn was down 62.9% YoY. The decline reflects a JPY929mn drop in income tax expenses in the US, which benefited from the reduction in the maximum federal income tax rate for US corporations that was part of the tax reform legislation passed in FY03/18.

From Q1 FY03/19, Coincheck was consolidated into the group and the securities investment business expanded, centering on Monex Ventures, Inc. In light of this, the company changed its segmentation from the three segments it had been using (Japan, US, and Asia-Pacific) to five segments (Japan, US, Asia-Pacific, Crypto Assets, and Investment).

Japan segment For full-year FY03/19, the Japan segment reported operating revenue of JPY27.7bn (-11.1% YoY). Commissions received came to JPY13.3bn (-21.6% YoY), trading income JPY4.5bn (+17.3% YoY), and financial income JPY9.8bn (+1.7% YoY). With financial expenses coming in at JPY2.0bn (-8.6% YoY), net financial income came to JPY7.8bn (+4.8% YoY).

Net operating revenue (operating revenue after deducting financial expenses and cost of revenue) was JPY25.7bn (-11.3% YoY), operating profit equivalent JPY2.7bn (-51.4% YoY), and pre-tax profit JPY1.2bn (-78.5% YoY).

Commissions Commissions received was JPY13.3bn (-21.6% YoY), of which brokerage commissions were JPY10.7bn (-24.4% YoY) and other commissions received JPY2.2bn (-1.3% YoY). Commissions from stock and ETF trading were JPY10.3bn (-24.7% YoY).

98/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Commissions received of JPY13.3bn was down 21.6% YoY. The drop reflects a decrease in commissions from stock and ETF trading to JPY10.3bn (-24.7% YoY). Equity trading by retail investors in the market was down, and decreases in the company’s market share and average commission rate (stemming from a reduction in commission rates on margin trades) led to a further decline in commissions received.

The average daily equity trading value of retail investors at the Tokyo and Nagoya stock exchanges totaled JPY1.1tn (-13.2% YoY). Monex Inc.’s market share of trading by retail investors decreased by 0.1pp to 5.2%, and its average daily stock trading value fell 15.2% YoY to JPY58.1bn. Cash trading value fell 27% YoY, while margin trading value only declined 1% YoY; this led to an increased share of margin trading value in overall trading value (Shared Research estimate based on company data).

The average commission rate on stock trading declined 0.009pp YoY to 0.074%. The decline mainly reflects lower commission rates for margin trades. In November 2017, Monex, Inc. revised its fees per trade for margin trades as follows: from JPY100 to JPY95 for transactions of JPY100,000 or less; from JPY450 to JPY190 for transactions of JPY500,000 or less; from JPY1,500 to JPY355 for transactions of JPY1mn or less; and from JPY3,000 to JPY800 for transactions of JPY2mn or less. Shared Research estimates this pushed down the average commission rate on margin trades from 0.12% to 0.05%. Additionally, the higher share of margin trades in overall trading value exerted downward pressure on the average commission rate.

Trading income Trading income was JPY4.5bn (+17.3% YoY). Forex trading value of JPY39.7tn was up 27.7% YoY, bolstered by Monex, Inc.’s move in November 2018 to reduce spreads on all currency pairs. The spread on the USD/JPY pair was lowered to JPY0.003 (fixed rate, but conditions apply).

Financial income Financial income came to JPY9.8bn (+1.7% YoY). The average margin trading balance increased, as did margin trading income. At end-FY03/19, Monex, Inc.’s margin trading balance stood at JPY156.9bn (-23.6% YoY), representing a 4.9% share (+0.1pp YoY) of the margin trading balance at the Tokyo and Nagoya stock exchanges amounting to JPY3.2tn (-25.2% YoY). The average margin trading balance increased, supported by the lower commission rates for margin trades. Shared Research estimates the average month-end margin trading balance was JPY179.3bn (+0.8% YoY; Shared Research estimate based on company data).

SG&A expenses SG&A expenses came to JPY23.0bn (-1.7% YoY). Trading-related expenses were JPY5.1bn (-11.3% YoY), personnel expenses JPY4.0bn (+0.4% YoY), and system-related expenses (including all related rents, operational expenses, and depreciation) JPY12.5bn (+1.5% YoY).

The decline in trading-related expenses owed to a drop in advertising expenses to JPY1.2bn (-32.1% YoY), as the company made progress in improving the efficiency of its marketing. The rise in system-related expenses, which account for a large proportion of SG&A expenses, is mainly due to a low year-earlier comparison (in FY03/18 system-related expenses dropped 11.6% YoY, thanks to terminating the outsourcing contract for the previous backbone system in FY03/17) and outlays to strengthen cybersecurity.

Net other expenses Net other expenses were JPY1.6bn (vs. net other revenue of JPY91mn in FY03/18), mainly due to booking an impairment loss of JPY1.8bn following a revaluation of the fair market value of fixed assets linked to TradeStation.

Customer trends As of the end of March 2019, Monex, Inc. had a total of 1,817,926 customer accounts (+3.2% YoY) and customer assets in custody of JPY4.1tn (-4.0% YoY).

US segment For full-year FY03/19, the US segment reported operating revenue of JPY22.8bn (+14.0% YoY), consisting of JPY12.0bn in commissions received (+1.3% YoY) and JPY9.2bn in financial income (+32.8% YoY). After deducting financial expenses, net

99/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

financial income was JPY6.0bn (+36.2% YoY). Net operating revenue came to JPY19.3bn (+11.0% YoY), operating profit equivalent JPY2.1bn (+124.3% YoY), and pre-tax segment profit JPY2.0bn (+601.1% YoY).

The core business of the US segment is TradeStation Securities, Inc., which is a subsidiary of TradeStation Group, Inc. The US segment mainly serves active traders, who tend to trade in large volume and contribute to earnings under high market volatility. TradeStation also captures financial income by managing customer deposits and benefits from an increase in interest rates.

The increase in brokerage commissions received reflects a rise in the number of new account openings as well as higher market volatility than in the same nine-month period in FY03/18. Higher short-term interest rates and higher stock-lending income underpinned the growth in financial income. The average USD/JPY exchange rate fluctuated less in FY03/19 than in FY03/18.

On the earnings front, the gains are attributable to top-line growth and careful cost control at the SG&A expense level, where the company held the YoY increase in expenses to only 4.6%.

On a USD basis, operating revenue was USD205.9mn (+14.0% YoY), consisting of USD108.5mn (+1.3% YoY) in commissions received and USD83.3mn (+32.8% YoY) in financial income. After deducting financial expenses, net financial income was USD54.2mn (+36.2% YoY). Net operating revenue came to USD174.6mn (+11.0% YoY), operating profit equivalent USD18.9mn (+124.4% YoY), and pre-tax profit USD17.9mn (+602.5% YoY).

Commissions Commissions received totaled USD108.5mn (+1.3% YoY) or JPY12.0bn (+1.3% YoY) on a yen basis. Brokerage commissions were USD77.4mn (+6.0% YoY) or JPY8.6bn (+6.0% YoY) and other commissions received USD31.1mn (-8.6% YoY) or JPY3.4bn (-8.6% YoY).

The rise in brokerage commissions reflects an increase in new account openings and higher market volatility than in FY03/18. An expanded user base of casual traders and millennials thanks to revamping the brand image with a new logo, lower commission rates for stocks and options trading since March 2017, and lower commission rates for futures trading since August 2017 all contributed to the increase in new account openings. As of the end of March 2019, TradeStation reported a total of 90,579 active accounts (+21.1% YoY). The VIX volatility index averaged 16.4 (+31.7% YoY). The average number of commissionable contracts or securities trades at the US segment on trading days (i.e., DARTs) rose 12.0% YoY to 78,990 (Shared Research estimate based on company data).

Financial income Financial income was USD83.3mn (+32.8% YoY) or JPY9.2bn (+32.8% YoY) on a yen basis. With financial expenses of USD29.0mn (+26.8% YoY) or JPY3.2bn (+26.8% YoY), net financial income came to USD54.2mn (+36.2% YoY) or JPY6.0bn (+36.2% YoY).

Net financial income mainly comes from investment returns on customer assets (cash) and fluctuates depending on the balance of assets under custody and US short-term interest rates. In FY03/19, a rise in short-term rates led to higher interest income, and stock lending income also increased. As the number of active accounts grew, so did the balance of customer assets in custody— which totaled USD5.5bn (+6.8% YoY) at end-FY03/19, of which cash assets amounted to about USD2.0bn. Until November 2018, the company used fixed-for-floating interest rate swaps on roughly USD1.0bn of cash assets, but switched to floating interest rates since December 2018, which improved net financial income by USD1mn per month. This move came on the back of consecutive federal funds rate hikes by the US Federal Reserve in 2018: from 2.00% in June (+0.75bp YoY) to 2.25% in September (+1.00bp YoY) and 2.50% in December (+1.00bp YoY).

SG&A expenses SG&A expenses were USD155.8mn (+4.6% YoY) or JPY17.3bn (+4.6% YoY) on a yen basis, consisting of USD55.3mn (+1.4% YoY) or JPY6.1bn (+1.4% YoY) in trading-related expenses, USD62.7mn (+7.4% YoY) or JPY6.9mn (+7.3% YoY) in personnel expenses, and USD25.9mn (+5.2% YoY) or JPY3.2bn (+5.1% YoY) in system-related expenses (including all related rents, operational expenses, and depreciation).

100/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

In trading-related expenses, commission paid increased but telecom, transportation, and information fees decreased. Commissions paid of USD28.3mn or JPY3.1bn was up 10.1% YoY, supported by increased trading volume. Telecom, transportation, and information fees of USD13.4mn or JPY1.5bn were down 16.4% YoY, mainly due to an inflated year-earlier comparison (note that a one-off payment of roughly USD2.9mn was made in Q1 FY03/18, and a partial redemption of these payment of around USD1.2mn was booked in FY03/19). Personnel expenses rose by about USD1.5mn, reflecting an increase in personnel (504 at end-FY03/19 vs. 479 at end-FY03/18) and roughly USD2.5mn paid in stock and performance bonuses.

Customer trends As of the end of March 2019, the number of active accounts at TradeStation Securities was 90,579 (+21.1% YoY) and customer assets in custody totaled USD5.5bn (+6.8% YoY). Revamping the brand image with a new logo helped increase the number of casual traders and millennials among customers, and lowering commission rates for stock and options trading in March 2017 as well as futures trading in August 2017, contributed to the increase in the number of active accounts.

Asia-Pacific segment For full-year FY03/19, the Asia-Pacific segment reported operating revenue of JPY829mn (-11.7% YoY), consisting of JPY406mn in commissions received (-27.1% YoY) and financial income of JPY301mn (+32.6% YoY). Net operating revenue was JPY808mn (- 13.2% YoY); the operating loss equivalent of JPY75mn compares with operating profit equivalent of JPY9mn in FY03/18; and the pre-tax loss (segment loss) of JPY48mn compares with a loss of JPY225mn in FY03/18.

The average JPY/HKD exchange rate did not fluctuate significantly YoY.

The core businesses of the Asia-Pacific segment are Monex Boom Securities (H.K.) Limited (a subsidiary of Monex Group’s Hong Kong operation Monex International Limited) and Monex Securities Australia Pty Ltd.

Commissions received Daily Average Revenue Trades (DARTs) at Hong Kong-based Monex Boom Securities (H.K.) Limited numbered 1,884 (-30.5% YoY) in Q1, 2,151 (-9.9% YoY) in Q2, 1,504 (-18.7% YoY) in Q3, and 1,951 (-20.0% YoY) in Q4, causing a drop in commissions received.

SG&A expenses SG&A expenses fell 4.2% YoY to JPY883mn. Although personnel and advertising expenses increased at Monex Securities Australia, commissions paid at Monex Boom Securities declined on decreased stock trading.

Other Net other expenses came to JPY4mn versus net other expenses of JPY278mn in FY03/18, when the company booked an impairment loss on financial assets of JPY291mn as a one-time expense. Equity-method investment income was JPY30mn (-30.7% YoY). The company logged a profit from a joint venture operating in mainland China.

Crypto Asset segment Operating revenue was JPY2.1bn, consisting of JPY186mn in commissions received and JPY1.9bn in trading income. The segment reported a pre-tax loss of JPY1.7bn.

The core business of the Crypto Asset segment is Coincheck, which was included in consolidated results starting in April 2018. After a long stretch when it was barred from opening new user accounts and restricted to offering only a few services, Coincheck was given the go-ahead by regulatory authorities to begin accepting new accounts and resume trading in some cryptocurrencies in October 2018, was subsequently given permission to handle transactions in all cryptocurrencies at the end of November 2018, and finally completed its registration as a cryptocurrency exchange operator in January 2019. Coincheck brokers and sells cryptocurrency, and most of its revenue comes from cryptocurrency sales (spread between purchase price and selling price), albeit it does not mine cryptocurrency.

101/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Commissions received of JPY186mn include withdrawals and remittance fees and commissions from the cryptocurrency exchange. Trading income of JPY1.9bn consist of income from cryptocurrency purchases and sales. At end-FY03/2019, Coincheck had 1.75mn registered users and 900,000 verified accounts. Customer assets in custody were JPY66.5bn, down from JPY123.1bn at end-Q1 (end of June 2018).

SG&A expenses were JPY4.8bn, including personnel and outsourcing expenses. Net other revenue came to JPY957mn, as JPY960 was booked in valuation gains from changes in the fair value estimate of amounts in arrears whose value was subject to conditions.

Investment segment The Investment segment comprises Monex Ventures, Inc. and MV1 Investment Limited Partnership.

Operating revenue for full-year FY03/19 was JPY414mn (-85.1% YoY). Financial income of JPY414mn was down 85.1% YoY. Financial income represents valuation gains on shareholdings. Financial income decreased YoY as the company booked gains on the sale of stocks held in FY03/18 and it had no such gains in FY03/19. SG&A expenses of JPY23mn was up 58.0% YoY. Equity- method investment profit was JPY8mn compared with profit of JPY25mn in FY03/18.

Q4 FY03/19 (January–March 2019) results

Operating revenue: JPY12.1bn (-21.0% YoY) ▷ Net operating revenue: JPY11.0bn (-21.9% YoY) ▷ Operating loss equivalent: JPY273mn (JPY3.7bn operating profit equivalent in Q4 FY03/18) ▷ Pre-tax loss: JPY1.4bn (JPY3.2bn pre-tax profit in Q4 FY03/18) ▷ Net loss*: JPY1.5bn (JPY2.1bn net profit in Q4 FY03/18) ▷ *Net loss/profit attributable to owners of the parent

The difference in operating loss equivalent and pre-tax loss owed to net other expenses of JPY1.2bn (JPY643mn other revenue – JPY1.8bn other expenses). The Crypto Asset segment booked net other revenue of JPY527mn in valuation gains from changes in the fair value estimate of amounts in arrears whose value was subject to conditions. However, the Japan segment posted net other expenses of JPY1.8bn owing to an impairment loss on fixed assets linked to the Japanese equities trading tool TradeStation following a reassessment of their fair market value.

Japan segment For Q4 FY03/19 (January–March 2019), the Japan segment reported operating revenue of JPY6.1bn (-22.1% YoY), of which commissions received came to JPY2.8bn (-35.3% YoY), trading income JPY1.2bn (+19.1% YoY), and financial income JPY2.1bn (- 15.4% YoY). Financial expenses were JPY446mn (-26.6% YoY), leaving net financial income of JPY1.7bn (-11.7% YoY).

Net operating revenue (operating revenue after deducting financial expenses and cost of revenue) was JPY5.6bn (-21.8% YoY), the operating loss equivalent JPY51mn (operating profit equivalent of JPY858mn in Q4 FY03/18), and pre-tax loss JPY1.7bn (pre- tax profit of JPY941mn in Q4 FY03/18).

Commissions received Commissions received in Q4 of JPY2.8bn was down 35.3% YoY, with the drop driven primarily by declining commissions from stock and ETF trading, which fell 38.1% YoY to JPY2.1bn. The average daily equity trading value of retail investors at the Tokyo and Nagoya stock exchanges fell 29.1% YoY to JPY1.7tn. Monex, Inc. had a market share of trading by retail investors of 5.0% (- 0.3pp YoY), with its average daily stock trading value decreasing 33.5% YoY to JPY53.3bn.

102/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

The average commission rate on stock trading declined, slipping 0.004pp YoY to 0.071%. The decrease in the average commission rate on stock trading owed to Monex, Inc. revising its commission rates for margin trading in November 2017, reducing its fees per trade. Commissions received fell JPY800mn or 22.1% QoQ mainly due to the decline in commissions from stock and ETF trading by JPY674mn or 23.9% QoQ. The average daily trading value of retail investors at the Tokyo and Nagoya stock exchanges fell 9.5% QoQ, while Monex, Inc.’s share of trading by retail investors fell 0.2pp QoQ to 5.0% and its average daily stock trading value fell 13.1% QoQ. The average commission rate on stock trading fell 0.004pp to 0.071%.

Trading income Trading income came to JPY1.2bn (+19.1% YoY). Forex trading value of JPY14.5tn jumped 48.4% YoY, driven by lower forex spreads. Higher interest rates in the US resulted in increased swap points.

Net financial income Financial income of JPY2.1bn was down 15.4% YoY, hurt by declines in the average balance of margin trading accounts and margin trading income. The balance of margin trading accounts at end-Q4 was JPY156.9bn (-23.6% YoY), and the average month-end balance of margin trading accounts was JPY156.8bn (-23.0% YoY; Shared Research estimate based on company data). Versus Q3 FY03/19, net financial income declined JPY459mn or 18.0% QoQ, as the average month-end balance of margin trading accounts fell 10.6% QoQ.

SG&A expenses SG&A expenses in Q4 of JPY5.7bn were down 10.4% YoY, as trading-related expenses fell 22.0% YoY to JPY1.3bn, personnel expenses decreased 4.3% YoY to JPY979mn, and system-related expenses (including all related rents, operational expenses, and depreciation) declined 6.4% YoY to JPY3.1bn.

The decline in trading-related expenses owed to advertising expenses falling to JPY294mn (-46.7% YoY) as the company made progress in improving the efficiency of marketing. System-related expenses (including related spending on rent, operations, and depreciation) decreased, due in part to a high year-earlier comparison caused by a one-off boost to office rents in Q4 FY03/18. Versus Q3 FY03/19, SG&A expenses declined by JPY64mn or 1.1% QoQ, as commissions paid decreased by JPY35mn or 9.3% QoQ and personnel expenses fell JPY72mn or 6.8% QoQ on the reduction of performance bonuses.

Net other revenue/expenses Net other expenses of JPY1.6bn was down from net other revenue of JPY83mn in Q4 FY03/18, mainly due to booking an impairment loss of JPY1.8bn on fixed assets linked to TradeStation after a reassessment of their fair market value.

US segment For Q4 FY03/19 (January–March 2019), the US segment reported operating revenue of JPY5.7bn (+5.5% YoY), consisting of JPY2.8bn in commissions received (-16.0% YoY) and JPY2.5bn in financial income (+48.9% YoY). After deducting financial expenses, net financial income was JPY1.8bn (+67.3% YoY). Net operating revenue was JPY5.0bn (+4.0% YoY) and operating profit equivalent JPY754mn (+5.8% YoY).

On a USD basis, operating revenue was USD51.9mn (+3.3% YoY), including commissions received of USD25.7mn (-17.6% YoY) and financial income of USD23.0mn (+45.3% YoY). Net operating revenue was USD45.2mn (+1.9% YoY) and operating profit equivalent USD6.8mn (+5.7% YoY).

Commissions received Commissions received totaled USD25.7mn (-17.6% YoY) or JPY2.8bn (-16.0% YoY) on a yen basis, comprising USD18.1mn (- 20.7% YoY) or JPY2.0bn (-19.3% YoY) in brokerage commissions and USD7.6mn (-9.2% YoY) or JPY842mn (-6.9% YoY) in other commissions.

Reduced market volatility compared with Q4 FY03/18 led to thinner trade volume and lower commissions received. In March 2019, the number of active accounts was 90,578, up 21.1% YoY, aided by a revamped brand image along with a new logo that

103/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

drew in casual traders and millennials, as well as lower commission rates for stock and options trading from March 2017 and futures trading from August 2017. The VIX volatility index dropped 5.1% YoY to 16.47, and the daily average revenue trades (DARTs) sunk 11.3% YoY to 78,670 trades (Shared Research estimate based on company data). Compared with Q3 FY03/19, commissions received fell USD3.1mn or 10.7% QoQ, of which brokerage commissions declined USD3.0mn or 14.2% QoQ. The number of active accounts rose by 3,928 or 4.5% QoQ, while the VIX index was down 21.8% QoQ and DARTs fell 12.8% QoQ.

Net financial income Financial income was USD23.0mn (+45.3% YoY) or JPY2.5bn (+48.9% YoY) on a yen basis. With financial expenses of USD6.4mn (+13.4% YoY) or JPY710mn (+16.0% YoY), net financial income came to USD16.5mn (+63.2% YoY) or JPY1.8bn (+67.3% YoY).

The rise in financial income owed chiefly to higher short-term interest rates in the US and termination of interest rate swaps. As of end-FY03/19, assets under custody were USD5.5bn (+6.8% YoY), of which around USD2.0bn were in cash assets. Until November 2018, the company used fixed-for-floating interest rate swaps on about JPY1.0bn in cash assets, but shifted to floating interest rates in light of the US Federal Reserve’s rate hiking cycle that had brought the FF rate to 2.50% (+1.00bp YoY) in December 2018. This contributed to a JPY1mn per month increase in net financial income. Compared with Q3 FY03/19, financial income rose USD2.3mn or 10.9% QoQ, financial expenses declined USD365,000 or 5.4% QoQ, leaving net financial income up USD2.7mn or 18.9% QoQ, supported largely by the termination of interest rate swaps and shift to floating interest rates.

SG&A expenses SG&A expenses totaled USD38.3mn (+1.3% YoY) or JPY4.2bn (+3.8% YoY), consisting of trading-related expenses of USD13.8mn (-3.1% YoY) or JPY1.5bn (-0.8% YoY), personnel expenses of USD15.0mn (-4.7% YoY) or JPY1.7bn (-2.6% YoY), and system- related expenses (including all related rents, operational expenses, and depreciation) of USD7.4mn (+6.8% YoY) or JPY815mn (+9.4% YoY).

In trading-related expenses, commission paid and stock exchange and association fees decreased, but telecom, transportation, and information fees increased. Commission paid and stock exchange and association fees came to USD6.6mn (-14.0% YoY) or JPY724mn (-12.3% YoY), reflecting a decline in trading volume. Telecom, transportation, and information fees totaled USD4.0mn (+15.8% YoY) or JPY440mn (+19.6% YoY). Personnel expenses declined, as although the number of personnel increased, this was more than offset by a decrease in performance bonuses.

Compared with Q3 FY03/19, SG&A expenses fell USD824,000 or 2.1% QoQ. Commissions paid and stock exchange and association fees decreased USD1.5mn or 18.8% QoQ, mainly due to a decrease in trading volume. Telecom, transportation, and information fees increased USD1.5mn or 59.6% QoQ, because in Q3 the company booked a partial redemption of information fees worth around USD1.2mn for a one-off payment booked in FY03/18. Personnel expenses declined USD1.4mn or 8.5% QoQ.

Crypto Asset segment For Q4 FY03/18, the segment booked JPY310mn in operating revenue, JPY20mn in commissions received, JPY290mn in trading income, and JPY560mn in pre-tax loss (segment loss).

Commissions received of JPY20mn include withdrawals and remittance fees and commissions from the cryptocurrency exchange. Trading income of JPY290mn comprise revenue from transactions on the cryptocurrency exchange. Trading income was low due to a decrease in customer assets in custody. The pre-tax loss was owed mainly to expenses for an internal control structure. At end-March 2019, customer assets in custody totaled JPY66.5bn, down from JPY123.1bn at end-Q1 FY03/19 (end of June 2018). SG&A expenses were JPY1.4bn, consisting of trading-related expenses, personnel expenses, and outsourcing expenses.

Compared with Q3 FY03/19, operating revenue declined JPY240mn or 43.6% QoQ, largely due to sluggish prices in the cryptocurrency market and a decline in the balance of customer cryptocurrency under custody, which has caused a drop in withdrawals and sales of cryptocurrency. SG&A expenses rose JPY224mn or 19.5% QoQ, mainly on increased advertising expenses, personnel expenses aimed at strengthening internal control, and office expenses. The number of segment employees rose from 125 at end-Q1 to 168 at end-Q4.

104/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Net other revenue of JPY511mn included valuation gains of JPY527mn from changes in the fair value estimate of amounts in arrears whose value was subject to conditions.

Income statement

Income statement FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 (JPYmn) J-GAAP J-GAAP IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS Operating revenues 22,499 25,227 30,569 36,090 54,722 50,975 54,271 45,831 53,635 52,175 YoY -9.3% 12.1% - 18.1% 51.6% -6.8% 6.5% -15.6% 17.0% -2.7% Financial expenses 2,577 2,638 1,682 2,320 4,672 5,766 4,629 3,979 4,480 4,758 Net operating revenues 19,921 22,589 28,888 33,769 50,051 45,209 49,642 41,852 49,155 47,417 YoY -5.4% 13.4% - 16.9% 48.2% -9.7% 9.8% -15.7% 17.4% -3.5% SG&A expenses 15,460 17,848 26,060 30,359 34,981 37,143 41,395 40,578 39,853 44,690 SG&A as % of operating revenues 68.7% 70.7% 85.2% 84.1% 63.9% 72.9% 76.3% 88.5% 74.3% 85.7% Operat ing profit equivalent 4,461 4,741 2,827 3,410 15,069 8,066 8,247 1,274 9,302 2,727 YoY -15.3% 6.3% - 20.6% 341.9% -46.5% 2.2% -84.6% 630.1% -70.7% OPM 19.8% 18.8% 9.2% 9.4% 27.5% 15.8% 15.2% 2.8% 17.3% 5.2% Other revenue 570 1,089 805 6,650 2,364 292 670 3,273 588 1,306 Other expenses 1,172 2,555 965 3,062 538 2,244 3,817 3,476 1,258 2,243 Pre-tax profit 3,996 3,268 2,668 6,998 16,895 6,115 5,100 1,071 8,631 1,790 YoY - -18.2% - 162.3% 141.4% -63.8% -16.6% -79.0% 705.9% -79.3% Pre-tax profit margin 17.8% 13.0% 8.7% 19.4% 30.9% 12.0% 9.4% 2.3% 16.1% 3.4% Income taxes 232 1,272 1,574 3,091 6,539 2,621 1,584 910 2,052 761 Implied tax rate 5.8% 38.9% 59.0% 44.2% 38.7% 42.9% 31.1% 85.0% 23.8% 42.5% Profit 3,764 1,996 1,094 3,907 10,356 3,494 3,516 161 6,579 1,029 YoY - -47.0% - 257.1% 165.1% -66.3% 0.6% -95.4% - -84.4% Profit margin 16.7% 7.9% 3.6% 10.8% 18.9% 6.9% 6.5% 0.4% 12.3% 2.0% Profit attrib. to owners of the parent 3,776 1,992 1,028 3,901 10,354 3,494 3,554 298 6,730 1,181 YoY - -47.2% - 279.5% 165.4% -66.3% 1.7% -91.6% - -82.5% Profit margin 16.8% 7.9% 3.4% 10.8% 18.9% 6.9% 6.5% 0.7% 12.5% 2.3% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: YoY increase of greater than 1000% denoted as -. Note: Monex Group began disclosing financial statements on an IFRS basis in FY03/13. Figures for FY03/12 have been adjusted to an IFRS basis. Figures for FY03/11 and earlier are on a Japanese GAAP basis.

105/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Balance sheet

Balance sheet FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 (JPYmn) J-GAAP IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS Assets Cash and cash equivalents 31,696 34,663 39,788 51,193 85,442 68,540 61,902 77,900 83,884 154,146 Cash segregated as deposits 162,285 175,202 291,899 349,837 426,719 525,567 497,442 552,028 543,438 566,220 Trading securities and other 620 1,833 2,430 4,078 2,458 4,148 2,945 1,697 1,618 2,543 Derivative assets 7,289 954 1,133 753 11,326 13,432 19,153 13,443 15,424 10,895 Inventories ------3,056 Iinvestments in seucirites 10,352 13,181 22,144 18,551 8,390 8,176 3,707 3,611 3,123 3,914 Margin transaction assets 115,927 96,602 90,795 149,487 178,230 175,637 149,236 147,653 192,224 138,836 Loans receivable secured by securities 186 - 15,339 44,583 152,382 159,969 31,628 34,250 21,389 42,064 Other financial assets 31,354 21,282 23,654 22,950 28,990 46,003 64,272 49,049 58,837 54,202 Tangible fixed assets 636 1,150 1,759 1,485 1,579 2,408 2,457 2,062 2,122 2,456 Intangible assets 9,945 11,055 35,916 37,394 41,558 48,807 53,053 53,751 49,851 47,698 Equity method investments 814 808 257 826 861 1,136 1,125 363 295 306 Deferred tax assets 2,836 2,031 105 61 247 20 8 2 13 289 Other assets 739 332 1,510 995 1,089 1,398 1,187 967 1,301 1,226 Total assets 374,688 359,093 526,729 682,193 939,270 1,055,242 888,116 936,776 973,520 1,027,849

Liabilities Derivative liabilities 2,854 2,103 2,599 7,604 9,047 12,159 7,178 5,828 5,340 4,311 Margin transaction liabilities 43,677 31,637 27,826 39,745 36,308 46,125 33,006 40,664 29,683 32,793 Loans payable secured by securities 35,108 26,603 24,776 67,661 183,765 195,521 71,974 77,504 78,203 101,028 Deposits received 70,583 93,842 185,797 231,164 287,385 368,656 350,904 324,672 324,256 358,176 Guarantee deposits received 101,337 78,707 118,058 131,535 167,039 184,850 170,666 257,753 254,647 249,544 Bonds and loans payable 48,450 49,768 82,200 113,381 159,125 150,418 154,261 138,133 191,010 190,641 Other financial liabilities 1,150 1,415 1,794 2,099 4,280 4,958 5,868 6,622 4,545 4,284 Provisoins 390 48 122 88 156 158 2,556 166 148 262 Income taxes payable 419 582 391 2,072 5,629 230 1,505 389 2,386 266 Deferred tax liabilities 29 112 6,351 5,418 3,810 3,732 3,161 2,401 1,524 1,862 Other liabilities 4,374 281 1,009 1,726 2,026 1,504 1,014 958 1,284 4,540 Total liabilities 308,378 285,098 450,923 602,492 858,569 968,310 802,094 855,090 893,027 947,707 Net assets Capital stock 8,800 10,394 10,394 10,394 10,394 10,394 10,394 10,394 10,394 10,394 Capital surplus 38,999 42,091 40,521 40,521 40,510 40,510 40,510 40,547 40,510 40,510 Treasury stock ------206 -313 Retained earnings 18,205 20,246 18,808 22,079 22,856 23,991 22,380 20,209 21,492 18,980 Other components of equity 217 1,071 5,836 6,673 6,941 12,038 12,532 10,222 8,139 9,424 Equity attributable to owners of parent 66,222 73,802 75,558 79,667 80,701 86,932 85,816 81,372 80,329 78,994 Non-controlling interests 88 193 248 35 - - 207 315 164 1,148 Total equity 66,310 73,995 75,806 79,702 80,701 86,932 86,022 81,687 80,493 80,142 Total interest bearing debt 48,450 49,768 82,200 113,381 159,125 150,418 154,261 138,133 191,010 190,641 Net debt 16,754 15,105 42,412 62,188 73,683 81,878 92,359 60,233 107,126 36,495 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Monex Group began disclosing financial statements on an IFRS basis in FY03/13. Balance sheet figures for FY03/12 and FY03/11 have been adjusted to an IFRS basis. Note: Figures for FY03/10 and earlier have been restated on a Japanese GAAP basis. Specifically, deposits for subscriptions are under assets; short-term guarantee deposits, accrued income, short-term loans, other current assets, provision of allowance for doubtful accounts, and long-term guarantee deposits are under other financial assets; securities are under equity-method investments or securities investments; and long-term deposits received are under other financial liabilities.

Assets The main asset categories are cash and cash equivalents (15.0% of total assets at end FY03/19), deposits and cash segregated as deposits (55.1%), margin transaction assets (13.5%), and intangible assets (4.6%).

The company’s assets fluctuate depending on trends in customers’ trading activities, which will affect customer assets in custody and the margin trading balance. Specifically, deposits and cash segregated as deposits and margin transaction assets increase or decrease with the number of customer accounts and margin accounts, per account assets under custody, and margin trading balance per margin account, and are essential for business expansion.

106/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Deposits and cash segregated as deposits Deposits and cash segregated as deposits refer to funds entrusted by customers (deposits and guarantee deposits), which the company manages in a separate account for their protection. The category includes cash and cash equivalents, call loans, government and municipal bonds, and jointly managed money trusts.

Trading securities These are securities held by the company mainly for short-term trading.

Derivative assets These are derivatives related to the company’s forex trading services and interest rate swaps traded to hedge against cash flow fluctuation risk for borrowings, deposits, and cash.

Investments in securities These are securities held by the company as investments that are not trading securities.

Margin transaction assets Margin transaction assets include loans on margin transactions and cash collateral pledged for securities borrowed on margin transaction.

Loans on margin transactions are accounted for in current assets–in amounts equivalent to those lent to customers purchasing securities on margin. Monex also posts collateral when it borrows securities from securities finance companies such as Japan Securities Finance (TSE1: 8511) in lending transactions. This is cash collateral pledged for securities borrowing on margin transactions.

Securities finance company: a company licensed by the Japanese government whose main business is lending securities or money, primarily in standard margin trading, through exchange settlements to brokerages and other financial exchange participants.

Breakdown of margin transaction assets

(JPYmn) FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 J-GAAP IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS Margin transaction assets 115,927 96,602 90,795 149,487 178,230 175,637 149,236 147,653 192,224 138,836 Loans on margin transactions 106,984 93,659 85,567 145,277 176,203 165,630 145,647 138,500 188,840 127,743 Cash collateral pledged for securities borrowing on margin 8,943 2,943 5,228 4,210 2,026 10,007 3,589 9,154 3,384 11,093 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Monex Group began disclosing financial statements on an IFRS basis in FY03/13. Figures for FY03/12 and FY03/11 have been adjusted to an IFRS basis, based on company data.

Other financial assets Other financial assets are loans receivable from customers and cash deposited as collateral. Collateral breaks down into collateral paid to partner financial institutions for forex trading, collateral paid to securities finance companies for stock borrowing/lending transactions associated with margin trading, collateral paid to clearing houses to facilitate settlement of financial instrument transactions, and loans and deposits paid to partner financial institutions and the stock exchange for the trading of financial instruments.

107/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Breakdown of other financial assets

(JPYmn) FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 J-GAAP IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS Ot her financial asset s 31,354 21,282 23,654 22,950 28,990 46,003 64,272 49,049 58,837 54,202 Guarantee deposits 9,323 6,435 12,615 11,734 14,137 25,159 27,721 30,404 40,137 33,798 Accrued income 2,670 2,423 2,890 3,027 2,969 3,335 3,382 3,788 4,140 4,382 Short-term loans 18,121 10,738 6,698 7,285 9,025 13,498 29,980 9,725 11,674 11,704 Allowance for doubtful accounts -101 -97 -446 -314 ------Others 1,341 1,457 1,897 1,218 2,859 4,011 3,190 5,132 2,886 4,318 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Monex Group began disclosing financial statements on an IFRS basis in FY03/13. Figures for FY03/12 and FY03/11 have been adjusted to an IFRS basis, based on company data. Intangible assets Intangible assets break down into goodwill, identifiable intangible assets, and other intangible assets.

Goodwill Under Japanese GAAP, reasonably estimated goodwill is amortized by the straight-line method over a period it is expected to have an effect, but under IFRS, goodwill accrued as a result of business combinations is not amortized, but subjected to an impairment test every fiscal year. Monex Group conducts the test at least once a year and additionally whenever there are signs of impairment.

Goodwill in FY03/18 broke down by region into Japan JPY7.6bn (unchanged YoY), US JPY8.6bn (versus JPY9.0bn in FY03/17), and China JPY409mn (versus JPY433mn in FY03/17).

Goodwill in Japan consists mainly of JPY7.7bn booked as a result of making ORIX Securities a subsidiary in FY03/10. The original plan was amortization by the straight-line method over 18 years. In the US, the main goodwill item was JPY10.0bn booked as a result of making TradeStation Group, Inc. a subsidiary in FY03/12. Goodwill in the US fluctuates according to the impact of impairment tests and forex rates.

Identifiable intangible assets Identifiable intangible assets in FY03/18 included the customer base of TradeStation Group (JPY2.4bn in FY03/18 versus JPY2.7bn in FY03/17) and technology-related assets (JPY7.0bn in FY03/18 versus JPY8.0bn in FY03/17). These intangible assets are written off over their working life. The remaining depreciation period was 11 years at end FY03/18.

Other intangible assets In the other intangible assets category, the company mainly books software developed in-house. Software is written off over five to seven years. In FY03/18, Monex, Inc. booked software totaling JPY17.2bn versus JPY19.3bn in FY03/17. TradeStation Technologies booked software totaling JPY4.1bn in FY03/18 versus JPY3.9bn in FY03/17.

Breakdown of intangible assets

(JPYmn) FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 J-GAAP IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS Int angible asset s 9,945 11,055 35,916 37,394 41,558 48,807 53,053 53,751 49,851 47,698 Goodw ill 8,013 8,048 18,453 17,138 18,027 18,112 17,296 17,043 16,607 16,990 Ident ifiable int angible asset s - - 13,898 14,912 15,109 15,841 13,805 12,624 11,053 10,499 Others 1,932 3,007 3,566 5,344 8,423 14,854 21,951 24,084 22,191 20,209 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Monex Group began disclosing financial statements on an IFRS basis in FY03/13. Figures for FY03/12 and FY03/11 have been adjusted to an IFRS basis, based on company data.

Liabilities The company’s main liabilities categories are deposits received (37.8% of total liabilities at end FY03/19), guarantee deposits received (26.3%), loans payable secured by securities (10.7%), and bonds and loans payable (20.1%).

108/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Deposits and guarantee deposits received fluctuate according to the number of customer accounts and trading activity (customer assets in custody and margin trading balance per account). Bonds and loans payable are funds procured mainly for margin trading loans and are linked to the margin trading balance.

Margin transaction liabilities Margin transaction liabilities comprise loans payable on margin transactions and cash received for securities lending on margin transactions.

A brokerage may borrow funds from securities finance companies to cover customers’ buy orders on margin, and this is booked as loans payable. It also receives advances on stock lending transactions on margin. When a customer places sell orders on margin, brokerages lend the stock to the customer, who then sells that borrowed stock. The price of the stock sold is returned to the brokerage as collateral for the borrowed stock. Advances received on stock lending on margin are booked by the brokerage in the amount equivalent to the selling price related to the short selling by the customer.

Breakdown of margin transaction liabilities

(JPYmn) FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 J-GAAP IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS Margin t ransact ion liabilit ies 43,677 31,637 27,826 39,745 36,308 46,125 33,006 40,664 29,683 32,793 Loans payable on margin transactions 12,853 11,693 2,757 14,847 22,607 13,861 15,178 13,113 13,242 3,573 Cash received for securities lending on margin trading 30,824 19,943 25,069 24,897 13,700 32,264 17,828 27,551 16,441 29,220 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Monex Group began disclosing financial statements on an IFRS basis in FY03/13. Figures for FY03/12 and FY03/11 have been adjusted to an IFRS basis, based on company data.

Loans payable secured by securities Loans payable secured by securities are funds received as collateral from the counterparty (the borrower of the securities) in a securities lending transaction.

Deposits Deposits are temporary deposits received from customers engaging in securities transactions.

Guarantee money Guarantee money received is guarantees for margin trading, forex trading, futures trading, etc.

Corporate bonds and borrowings Corporate bonds and borrowings are linked to loans on margin trades.

Breakdown of corporate bonds and borrowings

(JPYmn) FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 J-GAAP IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS Corporate bonds and loans payable 48,450 49,768 82,200 113,381 159,125 150,418 154,261 138,133 191,010 190,641 Loans payable 48,450 49,768 81,939 103,395 142,335 133,742 137,535 120,191 167,380 163,622 Short-term 43,450 49,768 65,485 89,426 75,200 36,812 86,321 54,607 110,758 94,667 Long-term 5,000 - 16,454 13,969 67,135 96,930 51,214 65,584 56,622 68,955 Corporate bonds - - 261 9,986 16,790 16,676 16,726 17,942 23,630 27,018 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Monex Group began disclosing financial statements on an IFRS basis in FY03/13. Figures for FY03/12 and FY03/11 have been adjusted to an IFRS basis, based on company data.

Equity There have been no major changes in the company’s total equity other than large increases in FY03/10 and FY03/11. The company redistributes profit to the shareholders through dividends payment and cancellation of treasury stocks.

Capital stock The company increased total capital by JPY1.6bn to JPY10.4bn in FY03/11 through a public share offering.

109/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Capital surplus Capital surplus increased by JPY23.8bn to JPY39.0bn in FY03/10 due to a new shares issue associated with the share swap with ORIX Securities. In FY03/11, it increased by JPY1.6bn following a public share offering, and by JPY1.6bn from a new shares issue for the merger transaction with the Boom Group, reaching JPY42.2bn as a result (stated as JPY42.1bn [-72mn] in above table due to the transition to IFRS).

Factors affecting capital surplus

(JPYmn) FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 J-GAAP IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS Capit al surplus 38,999 42,091 40,521 40,521 40,510 40,510 40,510 40,547 40,510 40,510 Transfer from retained earnings 1,835 - 1,528 - 5,514 - 1,162 1,000 3,727 1,664 Retirement of treasury stock -1,433 - -3,098 - -5,514 - -1,162 -1,000 -3,736 -1,767 Issuance of new shares 23,844 1,593 ------Increase by stock exchange - 1,570 ------Other -402 -72 ------29 103 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Monex Group began disclosing financial statements on an IFRS basis in FY03/13. Figures for FY03/12 and FY03/11 have been adjusted to an IFRS basis, based on company data. Retained earnings Retained earnings have trended at around JPY20bn due to dividends payment and the transfer of profit to capital surplus associated with cancelling treasury stock.

Factors affecting retained earnings

(JPYmn) FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 J-GAAP IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS Retained earnings 18,205 20,246 18,808 22,079 22,856 23,991 22,380 20,209 21,492 18,980 Net income 3,776 1,992 1,028 3,901 10,354 3,494 3,554 298 6,730 1,181 Dividends -1,389 -1,794 -939 -629 -4,064 -2,359 -4,003 -1,468 -1,755 -2,413 T ransfer t o capit al surplus -1,835 - -1,528 - -5,514 - -1,162 -1,000 -3,727 -1,664 Others -4 1,842 ------36 -11 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Monex Group began disclosing financial statements on an IFRS basis in FY03/13. Figures for FY03/12 and FY03/11 have been adjusted to an IFRS basis, based on company data.

Other components of equity Other capital accounts consist mainly of changes in fair value of marketable financial assets and translation differences of foreign business units.

Breakdown of other components of equity

(JPYmn) FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 J-GAAP IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS Other components of capital 217 1,071 5,836 6,673 6,941 12,038 12,532 10,222 8,139 9,424 Changes in fair value of available-for-sale financial assets - - 5,351 2,833 872 1,612 3,369 2,389 1,753 - Changes in fair value of hedging instrument - - - - -143 102 600 -419 -584 - Foreign currency translation adjustments in foreign operations - - 485 3,789 6,138 10,255 8,476 8,180 6,939 7,997

Share of other comprehensive income of equity method investments, and - - - 51 74 69 86 72 101 33 other components of equity Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Monex Group began disclosing financial statements on an IFRS basis in FY03/13. Figures for FY03/12 and FY03/11 have been adjusted to an IFRS basis, based on company data.

110/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Cash flow statement

Cash flow statement FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 (JPYmn) J-GAAP J-GAAP IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS Cash flow s from operat ing act ivit ies (1) -5,198 4,288 3,931 -20,510 -8,256 -249 766 43,715 -38,701 53,834 Pre-tax profit 3,996 3,268 2,668 6,998 16,895 6,115 5,100 1,071 8,631 1,790 Depreciat ion and amort izat ion 967 1,319 2,406 3,116 3,441 3,942 4,911 7,094 8,117 8,392 C hange in margin transaction assets and liabilities -32,207 7,284 1,996 -46,234 -32,180 12,410 13,283 9,241 -55,552 56,498 Change in short-term loans receivable 2,659 7,877 9,452 354 -1,032 -2,720 -17,148 20,141 -2,514 467 Income taxes paid -411 343 -1,200 -50 -4,088 -9,129 -1,869 -2,527 785 -5,352 Cash flow s from invest ing act ivit ies (2) 4,201 -2,087 -25,361 401 5,960 -8,602 -5,934 -8,301 -5,872 22,763 Purchase of investments in securities -36,984 -4,095 -9,216 -20,342 -12,771 -6,235 -80 -282 -491 -419 Proceeds from sales and redemption of securities 37,081 2,197 11,205 25,038 23,458 7,159 5,386 1,215 362 237 Purchase of tangible fixed assets -80 -602 -524 -517 -765 -1,233 -706 -673 -884 -1,230 Purchase of int angible fixed asset s -916 -1,207 -1,801 -2,958 -4,026 -8,301 -10,051 -8,603 -4,969 -6,265 Proceeds from sales of inv estments in associates 3,803 41 -29,053 -905 - - - - - 30,695 Cash flow s from financing act ivit ies -9,026 2,232 26,281 30,395 35,998 -11,968 -673 -18,462 49,870 -5,909 Change in short-term debt -10,200 5,373 18,200 23,834 -14,403 -39,331 11,741 -1,372 47,800 -40,816 Proceeds from issuance of bonds payable 173 -4,508 - - - - - 996 8,483 1,459 Change in long-term debt 2,500 - 14,258 7,214 60,016 29,721 -7,500 -15,898 -630 36,919 Purchase of treasury stock - - -3,098 - -5,514 - -1,162 -1,000 -4,030 -2,000 Dividends paid -1,398 -1,792 -938 -629 -4,053 -2,358 -3,997 -1,468 -1,754 -2,408 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

Cash flows from operating activities The company’s cash flows from operating activities are pretax profit, depreciation and amortization, and corporate tax payments, heavily influenced by margin transaction assets/liabilities and short-term loans.

When the long position balance in margin trading increases or decreases, there are corresponding increases and decreases in margin trading loans and corresponding decreases or increases in cash flow. If the short position balance increases or decreases, the increase/decrease in cash received for securities lending on margin transactions has a positive/negative effect on cash flow.

An increase/decrease in deposits and cash segregated as deposits (assets), and guarantee deposits received and deposits received (liabilities) each make a large impact, but their movements are usually linked and they tend to offset each other.

Cash flows from investing activities Cash flows from investing activities fluctuate mainly with outflows for the purchase of investment securities, inflows from the sale or redemption of investment securities, and outflows for the purchase of intangible assets. The purchase of intangible assets is primarily investment in software development.

Cash flows from financing activities Cash flows from financing activities fluctuate mainly with increases and decreases in corporate bonds and borrowings, outflows on share buybacks, and dividend payments. The company uses loans payable to manage the increase or decrease of long position balance in margin trading; loans payable increase or decrease in line with the balance, leading to positive or negative cash flows from financing activities.

111/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Other information

History

Monex founded in April 1999 Monex Group, Inc. got its start in April 1999 as online brokerage Monex, Inc. with CEO Oki Matsumoto and Sony Corporation as key investors. Sony’s CEO at the time was Nobuyuki Idei, who currently serves as independent and outside director of the Monex Group. Matsumoto believed that a startup could offer retail financial services using the internet, so he founded the company by harnessing the latest technology and financial knowledge on par with global standards to support retail investors

The internet spread rapidly in the second half of the 1990s and stock brokerage commissions were fully liberalized in Japan in October 1999. In this context, Matsui Securities started Japan’s first online brokerage service in May 1998, followed by DLJ Direct SFG Securities (forerunner of Rakuten Securities) in June 1999 and E*Trade Securities (which became SBI Securities) in October 1999.

Monex-Nikko Beans merger in 2004 The dot-com bubble burst in 2001, which led to a stock market slump. Struggling online brokerages withdrew or merged with other companies. In 2001, E-Wing Securities owned by the former Sanwa Bank (now MUFG Bank) and Itochu Corporation merged with Japan Online Securities and changed the company name to kabu.com Securities. E*Trade Securities and Fides Securities (former Nissho Iwai Securities) merged to form SBI E*Trade Securities (now SBI Securities) in 2005.

In August 2004, Monex, Inc. formed a joint holding company Monex Beans Holdings, Inc. with Nikko Beans, Inc. (a member of the Nikko Cordial Group). Monex, Inc. and Nikko Beans, Inc. merged in May 2005, changing the company name to Monex Beans, Inc., further expanding its business. The company also integrated the two trading systems into Nikko Beans’ system to cut costs.

Aimed to offer comprehensive financial services, but lost market share In the 2000s, the company declared its intention to become a provider of online retail financial services rather than simply being an online brokerage, based on the assumption that active asset management/asset building by individuals would grow. As such, it focused on providing a broad range of financial products and services.

Monex Group was the first in Japan to offer after-hours equity trading and stock lending services. The company also strengthened its trading tools and features, introduced alternative investment products (established Monex Alternative Investments, Inc. in October 2004), began offering products managed by investment algorithms (established Trade Science Corporation in April 2006), made forex trading company Tokyo Forex a subsidiary in August 2008, developed its investment banking business, and expanded overseas, establishing a subsidiary in the US in August 2007.

Meanwhile, its competitors cut commissions to attract active traders, and Monex Group lost market share as a result. Its share of equity trading value of retail investors increased to 8.7% in FY03/05 following the merger with Nikko Beans, Inc., but was down to 5.4% in FY03/10.

The company made ORIX Securities (ranked seventh among online brokerages in Japan) a subsidiary in January 2010 to expand in scale, which raised its share of equity trading value of retail investors to 7.3% in FY03/11.

112/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Overseas business expansion from 2010 onward After 2010, Monex Group began overseas business expansion and sought group synergies on the assumption that it could improve efficiency and growth potential by sharing information and platforms with multiple countries in the increasingly borderless world resulting from the spread of the Internet.

The company acquired Hong Kong-based online brokerage Boom Group in December 2010 and US company TradeStation Group in June 2011. In FY03/12, the company announced its medium-term management strategy covering FY03/12–FY03/17 and pushed ahead with plans to harness the technological development prowess of TradeStation, which was highly rated in the US.

One of the main successes of the strategy was the launch in March 2016 of the Japanese equities version of TradeStation by Monex, Inc. This trading tool was developed by Monex Group and TradeStation Group.

Aimed to reap rewards of measures in latter half of 2010s and entered cryptocurrency exchange business Monex, Inc., launched the Japanese equities version of TradeStation and developed its own backbone brokerage system during FY03/12–FY03/17, but earnings declined during this period because of the increase in system-related expenses.

The new strategy started in FY03/18. The company aims to cut the costs and utilize the assets gained under the previous strategy to achieve earnings growth.

Seeing blockchain and cryptocurrency technology as key growth drivers in the future, Monex Group has been preparing to enter this field since announcing its “New Beginning” initiative in October 2017. In keeping with this, it subsequently acquired cryptocurrency exchange operator Coincheck, Inc. in April 2018.

Date Event

April 1999 Establishes Monex, Inc.

Aug. 2000 Shares of Monex, Inc. listed on Tokyo Stock Exchange Mothers market

June 2001 Monex, Inc. merges with Saison Securities Co., Ltd.

Aug. 2004 Monex, Inc. and Nikko Beans, Inc. establish joint holdings company Monex Beans Holdings, Inc. by via share transfer

Aug. 2004 Shares of Monex Beans Holdings listed on Tokyo Stock Exchange Mothers market

May 2005 Monex, Inc., merges with Nikko Beans, Inc. to become Monex Beans, Inc.

Sept. 2005 Shares of Monex Beans Holdings listed on Tokyo Stock Exchange First Section

Aug. 2007 Establishes US subsidiary MBH America, Inc. (merged with TradeStation Group, Inc. in March 2012)

April 2008 Tokyo Forex becomes a subsidiary (company name changed to Monex FX)

Jan. 2010 ORIX Securities Corporation becomes wholly owned subsidiary

May 2010 Monex, Inc. merges with ORIX Securities

Oct. 2010 Establishes Monex, Inc.’s Beijing Representative Office

Dec. 2010 Boom Group becomes wholly owned subsidiary

June 2011 TradeStation Group, Inc. becomes wholly owned subsidiary

Aug. 2012 Sony Bank Securities Inc. becomes wholly owned subsidiary

Jan. 2013 Monex, Inc. merges with Sony Bank Securities

April 2013 Monex, Inc. acquires spun-off forex business (customer accounts and related forex business) from Money FX

June 2013 Transition to a Company with Committees

Feb. 2015 Monex, Inc. merges with Monex FX

Aug. 2015 Establishes Japan Investment Partners, Inc. (now Monex-Saison-Vanguard Investment Partners, Inc.

Apr. 2018 Coincheck, Inc. becomes wholly owned subsidiary

113/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Jan. 2019 Coincheck, Inc. completes registration with the Kanto Finance Bureau to operate a cryptocurrency exchange pursuant to laws and regulations concerning financial settlements.

News and topics July 2019 On July 26, 2019, the company announced a share buyback program.

Share buyback program Type of shares to be acquired Monex Group common shares Total number of shares to be acquired 10,000,000 shares (maximum, equal to 3.76% of shares outstanding) Total value of shares to be acquired JPY4.0bn (maximum) Acquisition period July 26 to August 16, 2019 Acquisition method At-the-market purchases including purchases on the Tokyo Stock Exchange’s ToSTNeT-3 market, an off-auction market designed to facilitate share buybacks

March 2019 On March 22, 2019, the company announced a treasury share retirement.

Number of shares to be retired: 3,383,700 shares (1.25% of total number of outstanding shares prior to retirement) ▷ Scheduled date of retirement: March 29, 2019 (tentative) ▷

As of March 22, 2019, prior to the retirement, the number of outstanding shares was 269,706,000 and the number of treasury shares was 3,983,722. The numbers are expected to be 266,322,300 and 600,022 respectively as of end-March 2019, after the retirement.

Major shareholders

Shares held Shareholding Top shareholders ('000) ratio The Shizuoka Bank, Ltd. 71,536 26.92% Japan Trustee Services Bank, Ltd. (Trust account) 17,992 6.77% Matsumoto, Inc. 17,243 6.48% The Master Trust Bank of Japan, Ltd. (Trust account) 8,759 3.29% Oki Matsumoto 7,512 2.82% Mizuho Securities Co., Ltd. 6,112 2.30% Recruit Holdings Co., Ltd. 5,720 2.15% Northern Trust Co. (AVFC) Re Fidelity Funds 3,827 1.44% Credit Saison Co., Ltd. 3,712 1.39% Japan Trustee Services Bank, Ltd. (Trust account 5) 3,620 1.36% Source: Shared Research based on company data As of March 31, 2019

Shareholder returns

Monex Group aims to provide returns to shareholders based on its business performance while maintaining sufficient investment capacity for growth, and is targeting at a 75% total return ratio on a multi-year basis.

The minimum dividend payment will be equal to an annual DOE (dividend on equity) of 2%. Distributions to shareholders will be made by dividend payments and/or share buybacks in a timely manner to be determined by management. Equity is defined as the sum of capital stock, capital surplus, treasury stock, and retained earnings.

Total return ratio = (Total dividends paid + total share buybacks) / profit attributable to owners of the parent

114/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Corporate governance and top management Corporate governance Monex Group has a committee-based governance system to ensure fairness and transparency of management and effectiveness of corporate governance by establishing three committees (nominating, audit, and compensation committees). There are nine directors on the Board of Directors, including six who are outside directors.

The Nominating Committee comprises five directors (including four outside directors) and determines the content of ◤ proposals submitted at the General Meetings of Shareholders regarding the selection of director candidates.

The Audit Committee comprises three directors (including three outside directors). Its role is to audit the performance of ◤ duties by directors and executive officers as well as cooperate with the Accounting Auditor in proposing audit policies and plans.

The Compensation Committee is comprised of three directors (including two outside directors). It makes decisions on the ◤ individual remuneration, etc., received by directors and executive officers.

Overview of corporate governance Type of organization and capital structure Type of organization Company with Committees Controlling shareholders None - Code of parent company Directors Number of directors stipulated in articles of incorporation 9 Term of directors stipulated in articles of incorporation 1 year 6 Outside (independent) directors Other Use of electronic voting platform for investors Yes English-language notice to convene shareholders’ meetings Yes Disclosure of employees’ compensation Discloses total compensation of all directors and outside directors Policy for deciding/calculating compensation amount Yes Takeover defense measures No

ORIX Corporation sold its stake to Shizuoka Bank in April 2014, making the bank the top shareholder. The bank has not appointed a director on Monex Group’s board.

Top management

Oki Matsumoto (Managing Director & Chairman and CEO) April 1987 Joined Salomon Brothers Asia Limited

April 1990 Moved to Goldman Sachs Japan

November 1994 Became general partner of Goldman Sachs Group, L.P.

April 1999 Founded Monex, Inc.

August 2004 Became president & CEO

May 2005 Became president & CEO of Monex Beans, Inc. (now Monex, Inc.)

June 2008 Became a director of Tokyo Stock Exchange, Inc. and director of Shinsei Bank, Limited

June 2010 Became a director of kakaku.com, Inc.

June 2011 Became chairman & CEO of TradeStation Group, Inc. (current)

June 2013 Became chairman & CEO of Monex Group (current)

November 2013 Became director of JINS

115/117 Monex Group / 8698 R LAST UPDATE: 2020.01.31 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

November 2015 Became chairman and CEO of Monex, Inc.

June 2016 Appointed an outside director of MasterCard Incorporated (current) August 2016 Became an outside director of Uzabase Inc. (current) April 2017 Became director & chairman of Monex, Inc.

October 2017 Became representative director & president, Monex, Inc. (current)

April 2018 Became a director of Coincheck, Inc.

April 2019 Became chairman & CEO of Monex, Inc. (current)

April 2019 Became director & chairman of Coincheck, Inc.

Profile

Company Name Head Office ARK Mori Building 25F Monex Group, Inc. 1-12-32, Akasaka, Minato-ku Tokyo 107-6025 Phone Listed On +813-4323-8698 Tokyo Stock Exchange 1st Section Established Exchange Listing August 2, 2004 August 2, 2004 Website Financial Year-End http://www.monexgroup.jp/en/index.html March IR Contact IR Web http://www.monexgroup.jp/en/contact.html http://www.monexgroup.jp/en/investor.html e-mail Telephone (IR) http://www.monexgroup.jp/jp/investor/ir_alert.html (Japanese) +813-4323-8698

116/117 About Shared Research Inc. R Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

We offer corporate clients comprehensive report coverage, a service that allows them to better inform investors and other stakeholders by presenting a continuously updated third-party view of business fundamentals, independent of investment biases. Shared Research can be found on the web at https://sharedresearch.jp.

Current Client Coverage of Shared Research Inc.

Accordia Golf Trust Demae-Can CO., LTD Kanamic Network Co.,LTD RYOHIN KEIKAKU CO., LTD. Advance Create Co., Ltd. DIC Corporation Kawanishi Holdings, Inc. SanBio Company Limited ADJUVANT COSME JAPAN CO., LTD. Digital Arts Inc. KFC Holdings Japan, Ltd. SANIX INCORPORATED Aeon Delight Co., Ltd. Digital Garage Inc. KI-Star Real Estate Co., Ltd. Sanrio Company, Ltd. Aeon Fantasy Co., Ltd. Dream Incubator Inc. Kondotec Inc. SATO HOLDINGS CORPORATION Ai Holdings Corporation Earth Corporation Kumiai Chemical Industry Co., Ltd. SBS Holdings, Inc. AirTrip Corp. Elecom Co., Ltd. Lasertec Corporation Seikagaku Corporation and factory, inc. en-Japan Inc. LUCKLAND CO., LTD. Seria Co.,Ltd. ANEST IWATA Corporation euglena Co., Ltd. MATSUI SECURITIES CO., LTD. SHIFT Inc. AnGes Inc. FaithNetwork Co., Ltd. Medical System Network Co., Ltd. Shikigaku Co., Ltd Anicom Holdings, Inc. Ferrotec Holdings Corporation MEDINET Co., Ltd. SHIP HEALTHCARE HOLDINGS, INC. Anritsu Corporation FIELDS CORPORATION MedPeer,Inc. SIGMAXYZ Inc. Apaman Co., Ltd. Financial Products Group Co., Ltd. Mercuria Investment Co., Ltd. SMS Co., Ltd. ARATA CORPORATION FreeBit Co., Ltd. Micronics Japan Co., Ltd. Snow Peak, Inc. Artspark Holdings Inc. FRONTEO, Inc. MIRAIT Holdings Corporation Solasia Pharma K.K. AS ONE CORPORATION Fujita Kanko Inc. Monex Goup Inc. SOURCENEXT Corporation Ateam Inc. Gamecard-Joyco Holdings, Inc. MORINAGA MILK INDUSTRY CO., LTD. Star Mica Holdings Co., Ltd. Aucfan Co., Ltd. GameWith, Inc. NAGASE & CO., LTD Strike Co., Ltd. AVANT CORPORATION GCA Corporation NAIGAI TRANS LINE LTD. SymBio Pharmaceuticals Limited Axell Corporation Good Com Asset Co., Ltd. NanoCarrier Co., Ltd. Synchro Food Co., Ltd. Azbil Corporation Grandy House Corporation Net Marketing Co., Ltd. TAIYO HOLDINGS CO., LTD. AZIA CO., LTD. Hakuto Co., Ltd. Net One Systems Co.,Ltd. Takashimaya Company, Limited AZoom, Co., Ltd. Hamee Corp. Nichi-Iko Pharmaceutical Co., Ltd. Take and Give Needs Co., Ltd. BEENOS Inc. Happinet Corporation Nihon Denkei Co., Ltd. Takihyo Co., Ltd. Bell-Park Co., Ltd. Harmonic Drive Systems Inc. Nippon Koei Co., Ltd. TEAR Corporation Benefit One Inc. HOUSEDO Co., Ltd. NIPPON PARKING DEVELOPMENT Co., Ltd. Tenpo Innovation Inc. B-lot Co.,Ltd. IDOM Inc. NIPRO CORPORATION 3-D Matrix, Ltd. Broadleaf Co., Ltd. IGNIS LTD. Nisshinbo Holdings Inc. TKC Corporation Canon Marketing Japan Inc. i-mobile Co.,Ltd. NS TOOL CO., LTD. TKP Corporation Career Design Center Co., Ltd. Inabata & Co., Ltd. OHIZUMI MFG. CO., LTD. TOCALO Co., Ltd. Carna Biosciences, Inc. Infocom Corporation Oisix ra daichi Inc. TOKAI Holdings Corporation CARTA HOLDINGS, INC Infomart Corporation Oki Electric Industry Co., Ltd TOYOBO CO., LTD. CERES INC. Intelligent Wave, Inc. ONO SOKKI Co., Ltd. Toyo Ink SC Holdings Co., Ltd Chiyoda Co., Ltd. ipet Insurance CO., Ltd. ONWARD HOLDINGS CO.,LTD. Toyo Tanso Co., Ltd. Chori Co., Ltd. istyle Inc. Pan Pacific International Holdings Corporation Tri-Stage Inc. Chugoku Marine Paints, Ltd. Itochu Enex Co., Ltd. PARIS MIKI HOLDINGS Inc. VISION INC. cocokara fine Inc. JSB Co., Ltd. PIGEON CORPORATION VISIONARY HOLDINGS CO., LTD. COMSYS Holdings Corporation JTEC Corporation QB Net Holdings Co., Ltd. WirelessGate, Inc. COTA CO.,LTD. J Trust Co., Ltd RACCOON HOLDINGS, Inc. YELLOW HAT LTD. CRE, Inc. Japan Best Rescue System Co., Ltd. Raysum Co., Ltd. YOSHINOYA HOLDINGS CO., LTD. CREEK & RIVER Co., Ltd. JINS HOLDINGS Inc. RESORTTRUST, INC. YUMESHIN HOLDINGS CO., LTD. Daiichi Kigenso Kagaku Kogyo Co., Ltd. JP-HOLDINGS, INC. ROUND ONE Corporation Yushiro Chemical Industry Co., Ltd. Daiseki Co., Ltd. KAMEDA SEIKA CO., LTD. RVH Inc. ZAPPALLAS, INC.

Attention: If you would like to see companies you invest in on this list, ask them to become our client, or sponsor a report yourself.

Disclaimer: This document is provided for informational purposes only. No investment opinion or advice is provided, intended, or solicited. Shared Research Inc. offers no warranty, either expressed or implied, regarding the veracity of data or interpretations of data included in this report. We shall not be held responsible for any damage caused by the use of this report. The copyright of this report and the rights regarding the creation and exploitation of the derivative work of this and other Shared Research Reports belong to Shared Research. This report may be reproduced or modified for personal use; distribution, transfer, or other uses of this report are strictly prohibited and a violation of the copyright of this report. Our officers and employees may currently, or in the future, have a position in securities of the companies mentioned in this report, which may affect this report’s objectivity.

Japanese Financial Instruments and Exchange Law (FIEL) Disclaimer: The report has been prepared by Shared Research under a contract with the company described in this report (“the company”). Opinions and views presented are ours where so stated. Such opinions and views attributed to the company are interpretations made by Shared Research. We represent that if this report is deemed to include an opinion from us that could influence investment decisions in the company, such an opinion may be in exchange for consideration or promise of consideration from the company to Shared Research.

Contact Details Shared Research Inc. 3-31-12 Sendagi Bunkyo-ku Tokyo, Japan https://sharedresearch.jp Phone: +81 (0)3 5834-8787 Email: [email protected]

117/117