R Monex Group / 8698

COVERAGE INITIATED ON: 2018.04.16 LAST UPDATE: 2020.06.11

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: 2020.06.11 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 FY03/21 ------33 Medium-term outlook ------38 Business ------46 Business description ------46 Services and customer segments ------47 Earnings structure ------57 Consolidated earnings ------59 Japan segment ------61 US segment ------69 Strengths and weaknesses ------75 Group companies ------76 Market and value chain ------78 Historical performance ------95 Income statement ------124 Balance sheet ------125 Cash flow statement ------130 Other information ------131 History ------131 News and topics ------133 Major shareholders ------134 Shareholder returns------134 Corporate governance and top management ------134 Profile ------136

02/137 Monex Group / 8698 R LAST UPDATE: 2020.06.11 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Executive summary

One of Japan’s five online brokers with subsidiaries in US and in cryptocurrency exchange business

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 (in Hong Kong) in 2010 and TradeStation Group, Inc. (in the US) 2011. 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 services. The company offers trading services mainly in equities, ◤ forex, and investment trusts (mutual funds) as well as futures, options, bonds, and cryptocurrency. Peers are SBI Securities, Rakuten Securities, Matsui Securities, and au Kabucom Securities (in order of market share).

In FY03/20, main group subsidiary Monex, Inc. had 1.86mn accounts (ranking it third among Japan’s top five online ◤ brokerages with a 13.8% market share), customer assets under custody of JPY3.8tn (third; 14.7%), equity trading value of JPY13.5tn (fifth, 6.4%), and margin trades outstanding of JPY126.8bn (fifth; 8.3%). Monex is distinguished from its competitors by its US subsidiary and its subsidiary in the cryptocurrency exchange business. Its customer base mainly consists of investors with a longer-term outlook who do not mind paying higher commissions for the diverse trading order options and trading tools the company offers.

Monex Group has five reporting segments: Japan, US, Asia-Pacific, Crypto Asset, and Investment. At the Japan segment, ◤ Monex Inc. is the core business, at the US segment the core business is TradeStation Group, at the Asia-Pacific segment the core business is Boom Securities, at the Crypto Asset segment the core business is Coincheck, and at the Investment segment the core business is Monex Ventures. In FY03/20, the Japan segment accounted for 49.9% of net operating revenue, the US segment 40.7%, and the Crypto Asset segment 7.0%. At the pre-tax profit level, the Japan segment accounted for 53.9% of consolidated earnings, the US segment 42.3%, and the Crypto Asset segment 7.0%.

Japan (Monex, Inc.): Net operating revenue at the Japan segment comes from stock brokerage commissions (40.8% in ◤ FY03/20), trading income (20.7%), and net financial income (27.1%). Segment SG&A expenses are mostly fixed, with trading-related expenses accounting for 23.6%, personnel expenses 20.8%, and system-related expenses 49.4%.

US (TradeStation Group): Net operating revenue at the US segment comes from brokerage commissions (61.7% in ◤ FY03/20) and net financial income (33.0%). Segment SG&A expenses is comprised of trading-related expenses (34.1%), personnel expenses (40.4%), and system-related expenses (19.4%) — the elevated level of personnel expenses reflecting the high cost of its in-house software development team. At end-March 2020, the US segment had a total of 102,012 active accounts and USD5.4bn in customer assets under custody.

Crypto Asset (Coincheck, Inc.): Coincheck provides cryptocurrency exchange services and derives the majority of its ◤ operating revenue from net trading income. Segment SG&A expenses is comprised of trading-related expenses (22.3% in FY03/20), personnel expenses (36.7%), and office expenses (10.9%). In FY03/20, Coincheck had a total of 2.03mn registered users and 940,000 verified accounts.

Trends and outlook

For FY03/20, the company reported full-year consolidated operating revenue of JPY53.2bn (+2.0% YoY), net operating ◤ revenue of JPY48.0bn (+1.2% YoY), operating profit equivalent of JPY5.2bn (+89.0% YoY), pre-tax profit of JPY4.1bn (+130.8% YoY), and profit attributable to parent company shareholders of JPY3.0bn (+155.0% YoY). The jump in earnings reflected a combination of lower earnings at the Japan and US segments, and higher earnings at the Crypto Asset segment.

In the wake of the move by major online brokers in the US to commission-free trading in October 2019, Monex changed its ◤ own direction in Q3 FY03/20 and began working to move its business model away from a brokerage service-based model and more towards an asset management service-based model. Under the new business model, the Monex Group will be

03/137 Monex Group / 8698 R LAST UPDATE: 2020.06.11 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

focusing less on generating brokerage commissions and more on receiving compensation for services to support the wealth building and asset management of its customers.

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.)

04/137 Monex Group / 8698 R LAST UPDATE: 2020.06.11 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Key financial data

Income statement FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 (JPYmn) J-GAAP IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS Operating revenue 25,227 30,569 36,090 54,722 50,975 54,271 45,831 53,635 52,175 53,226 YoY 12.1% - 18.1% 51.6% -6.8% 6.5% -15.6% 17.0% -2.7% 2.0% Net operating revenue 22,589 28,888 33,769 50,051 45,209 49,642 41,852 49,155 47,417 47,990 YoY 13.4% - 16.9% 48.2% -9.7% 9.8% -15.7% 17.4% -3.5% 1.2% GPM 89.5% 94.5% 93.6% 91.5% 88.7% 91.5% 91.3% 91.6% 90.9% 90.2% Operat ing profit equivalent 4,741 2,827 3,410 15,069 8,066 8,247 1,274 9,302 2,727 5,155 YoY 6.3% - 20.6% 341.9% -46.5% 2.2% -84.6% 630.1% -70.7% 89.0% OPM 18.8% 9.2% 9.4% 27.5% 15.8% 15.2% 2.8% 17.3% 5.2% 9.7% Pre-tax profit 3,268 2,668 6,998 16,895 6,115 5,100 1,071 8,631 1,790 4,131 YoY -18.2% - 162.3% 141.4% -63.8% -16.6% -79.0% 705.9% -79.3% 130.8% Pre-tax margin 13.0% 8.7% 19.4% 30.9% 12.0% 9.4% 2.3% 16.1% 3.4% 7.8% Profit attributable to owners of the parent 1,992 1,028 3,901 10,354 3,494 3,554 298 6,730 1,181 3,011 YoY -47.2% - 279.5% 165.4% -66.3% 1.7% -91.6% - -82.5% 155.0% Profit margin 7.9% 3.4% 10.8% 18.9% 6.9% 6.5% 0.7% 12.5% 2.3% 5.7% Per share data Shares issued (year-end; '000) 3,197 2,997 2,997 287,681 287,681 284,134 280,592 269,706 266,322 258,999 EPS 6.5 3.4 13.0 35.8 12.2 12.5 1.1 24.3 4.4 11.6 EPS (fully dilut ed) - - - - - 12.5 1.1 24.3 - 11.6 Dividend per share 5.0 2.0 4.1 18.0 8.2 9.6 5.2 10.0 5.4 5.9 Book value per share 221.5 252.1 265.8 280.5 302.2 302.0 290.0 298.5 297.3 297.7 Balance sheet (JPYmn) Cash and cash equivalents 34,663 39,788 51,193 85,442 68,540 61,902 77,900 83,884 154,146 132,561 Cash segregated as deposits 175,202 291,899 349,837 426,719 525,567 497,442 552,028 543,438 566,220 620,222 Margin transaction assets 96,602 90,795 149,487 178,230 175,637 149,236 147,653 192,224 138,836 107,207 Loans secured by securities - 15,339 44,583 152,382 159,969 31,628 34,250 21,389 42,064 32,748 Int angible asset s 11,055 35,916 37,394 41,558 48,807 53,053 53,751 49,851 47,698 46,006 Total assets 359,093 526,729 682,193 939,270 1,055,242 888,116 936,776 973,520 1,027,849 1,022,934 Margin t ransact ion liabilit ies 31,637 27,826 39,745 36,308 46,125 33,006 40,664 29,683 32,793 30,044 Loans payable secured by securities 26,603 24,776 67,661 183,765 195,521 71,974 77,504 78,203 101,028 72,349 Deposits received 93,842 185,797 231,164 287,385 368,656 350,904 324,672 324,256 358,176 393,344 Guarantee deposits 78,707 118,058 131,535 167,039 184,850 170,666 257,753 254,647 249,544 282,006 Bonds and loans payable 49,768 82,200 113,381 159,125 150,418 154,261 138,133 191,010 190,641 147,941 Tot al liabilit ies 285,098 450,923 602,492 858,569 968,310 802,094 855,090 893,027 947,707 945,909 Total capital 73,995 75,806 79,702 80,701 86,932 86,022 81,687 80,493 80,142 77,024 Total interest-bearing debt 49,768 82,200 113,381 159,125 150,418 154,261 138,133 191,010 190,641 147,941 Cash flow statement (JPYmn) Cash flow s from operat ing act ivit ies 4,288 3,931 -20,510 -8,256 -249 766 43,715 -38,701 53,834 34,454 Cash flow s from invest ing act ivit ies -2,087 -25,361 401 5,960 -8,602 -5,934 -8,301 -5,872 22,763 -7,068 Cash flow s from financing act ivit ies 2,232 26,281 30,395 35,998 -11,968 -673 -18,462 49,870 -5,909 -48,399 Financial rat ios ROA (pre-tax profit based) 0.9% 0.6% 1.2% 2.1% 0.6% 0.5% 0.1% 0.9% 0.2% 0.4% ROE 2.8% 1.4% 5.0% 12.9% 4.2% 4.1% 0.4% 8.3% 1.5% 3.9% Equit y rat io 20.6% 14.4% 11.7% 8.6% 8.2% 9.7% 8.7% 8.3% 7.8% 7.5% 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 “-.”

05/137 Monex Group / 8698 R LAST UPDATE: 2020.06.11 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Recent updates Highlights On June 11, 2020, Shared Research updated the report following interviews with Monex Group, Inc.

On May 7, 2020, the company announced full-year results for FY03/20; see the results section for details.

On the same day, the company announced the booking of impairment losses.

The company indicated that FY03/20 results included impairment losses booked on its TradeStation software assets (fixed assets) upon the termination of services for this Japanese equities trading tool operated by subsidiary Monex, Inc. The impairment losses included writedown of approximately JPY200mn at Monex, Inc. (under the Japan segment) and another JPY200mn writedown at TradeStation Technologies, Inc. (under the US segment).

On the same day, the company announced its year-end dividend forecast.

The company expects to make a fiscal year-end dividend payment of JPY3.2 per share for FY03/20. Combined with its interim dividend payment of JPY2.7 per share, this will bring the company’s annual dividend payment for FY03/20 to JPY5.9 per share versus JPY5.4 per share in FY03/19.

On March 23 2020, the company announced the cancellation of treasury shares.

Shares to be cancelled: 7,324,000 shares (2.75% of total issued shares before cancellation) ▷ Scheduled date of cancellation: March 31, 2020 ▷

As of March 23, 2020, there were 266,322,000 total issued shares and 10,324,000 treasury shares. After cancellation on March 31, the number of total issued shares will fall to 258,999,000 and the number of treasury shares to 3,000,000.

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

06/137 Monex Group / 8698 R LAST UPDATE: 2020.06.11 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 53,226 YoY 14.9% 7.3% 4.5% -2.7% -3.4% -1.4% -3.8% 2.0% Net operating revenue 12,358 23,845 36,400 47,417 11,881 23,278 34,433 47,990 YoY 14.0% 6.2% 3.9% -3.5% -3.9% -2.4% -5.4% 1.2% Commissions received 6,756 13,085 19,996 25,741 5,721 11,456 17,559 25,375 YoY -1.9% -5.3% -6.4% -11.8% -15.3% -12.4% -12.2% -1.4% Brokerage 5,134 9,854 15,186 19,463 4,341 8,669 13,332 19,383 YoY -2.2% -5.8% -7.4% -13.7% -15.4% -12.0% -12.2% -0.4% Equity and ETF 3,364 6,494 9,893 12,610 2,575 5,142 8,225 12,022 YoY -10.0% -12.7% -16.4% -21.1% -23.5% -20.8% -16.9% -4.7% Futures and options 1,768 3,357 5,289 6,851 1,737 3,485 5,060 7,309 YoY 17.0% 11.0% 16.0% 4.3% -1.8% 3.8% -4.3% 6.7% Underw rit ing and dist ribut ion 23 32 57 70 32 56 79 105 YoY 283.3% -74.6% -63.7% -59.3% 39.1% 75.0% 38.6% 50.0% Subscript ion and dist ribut ion 70 162 299 355 58 119 173 176 YoY -20.5% -2.4% 4.9% -22.7% -17.1% -26.5% -42.1% -50.4% Ot her commissions 1,530 3,038 4,455 5,852 1,289 2,612 3,975 5,712 YoY -0.8% -0.8% -1.5% -2.9% -15.8% -14.0% -10.8% -2.4% Net t rading income 1,791 3,209 5,014 6,461 2,304 4,254 5,877 8,550 YoY 102.8% 77.6% 73.3% 67.2% 28.6% 32.6% 17.2% 32.3% Financial income 4,889 9,733 14,562 19,242 4,930 9,949 14,586 18,579 YoY 23.7% 11.8% 11.4% -0.6% 0.8% 2.2% 0.2% -3.4% Other operating revenue 175 373 544 731 198 375 553 722 YoY 37.8% 33.7% -48.3% -40.3% 13.1% 0.5% 1.7% -1.2% SG&A expenses 11,255 22,193 33,400 44,690 10,666 21,112 31,383 42,835 YoY 14.7% 14.7% 13.5% 12.1% -5.2% -4.9% -6.0% -4.2% % of net operating revenue 91.1% 93.1% 91.8% 94.2% 89.8% 90.7% 91.1% 89.3% Operat ing profit equivalent 1,103 1,652 3,000 2,727 1,215 2,166 3,050 5,155 YoY 8.1% -46.7% -46.5% -70.7% 10.2% 31.1% 1.7% 89.0% % of net operating revenue 8.9% 6.9% 8.2% 5.8% 10.2% 9.3% 8.9% 10.7% Pre-tax profit 1,130 1,830 3,223 1,790 1,196 2,195 3,064 4,131 YoY 42.1% -39.2% -40.7% -79.3% 5.8% 19.9% -4.9% 130.8% % of net operating revenue 9.1% 7.7% 8.9% 3.8% 10.1% 9.4% 8.9% 8.6% Profit attributable to owners of the parent 1,196 1,745 2,696 1,181 849 1,679 2,252 3,011 YoY 171.2% -13.4% -42.2% -82.5% -29.0% -3.8% -16.5% 155.0% % of net operating revenue 9.7% 7.3% 7.4% 2.5% 7.1% 7.2% 6.5% 6.3% 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 14,651 YoY 14.9% 0.2% -0.4% -21.0% -3.4% 0.7% -8.6% 21.5% Net operating revenue 12,358 11,487 12,555 11,017 11,881 11,397 11,155 13,557 YoY 14.0% -1.1% -0.3% -21.9% -3.9% -0.8% -11.2% 23.1% Commissions 6,756 6,329 6,911 5,745 5,721 5,735 6,103 7,816 YoY -1.9% -8.7% -8.3% -26.7% -15.3% -9.4% -11.7% 36.0% Brokerage 5,134 4,720 5,332 4,277 4,341 4,328 4,663 6,051 YoY -2.2% -9.5% -10.1% -30.4% -15.4% -8.3% -12.5% 41.5% Equity and ETF 3,364 3,130 3,399 2,717 2,575 2,567 3,083 3,797 YoY -10.0% -15.5% -22.6% -34.4% -23.5% -18.0% -9.3% 39.7% Futures and options 1,768 1,589 1,932 1,562 1,737 1,748 1,575 2,249 YoY 17.0% 5.0% 25.7% -22.1% -1.8% 10.0% -18.5% 44.0% Underw rit ing and dist ribut ion 23 9 25 13 32 24 23 26 YoY 283.3% -92.5% -19.4% -13.3% 39.1% 166.7% -8.0% 100.0% Subscript ion and dist ribut ion 70 92 137 56 58 61 54 3 YoY -20.5% 17.9% 15.1% -67.8% -17.1% -33.7% -60.6% -94.6% Ot her commissions 1,530 1,508 1,417 1,397 1,289 1,323 1,363 1,737 YoY -0.8% -0.7% -2.9% -7.1% -15.8% -12.3% -3.8% 24.3% Net t rading income 1,791 1,418 1,805 1,447 2,304 1,950 1,623 2,673 YoY 102.8% 53.5% 66.2% 48.9% 28.6% 37.5% -10.1% 84.7% Financial income 4,889 4,844 4,829 4,680 4,930 5,019 4,637 3,993 YoY 23.7% 1.9% 10.5% -25.4% 0.8% 3.6% -4.0% -14.7% Other operating revenue 175 198 171 187 198 177 178 169 YoY 37.8% 30.3% -77.9% 8.7% 13.1% -10.6% 4.1% -9.6% SG&A expenses 11,255 10,938 11,207 11,290 10,666 10,446 10,271 11,452 YoY 14.7% 14.7% 11.1% 8.4% -5.2% -4.5% -8.4% 1.4% % of net operating revenue 91.1% 95.2% 89.3% 102.5% 89.8% 91.7% 92.1% 84.5% Operat ing profit equivalent 1,103 549 1,348 -273 1,215 951 884 2,105 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% 15.5% Pre-tax profit 1,130 700 1,393 -1,433 1,196 999 869 1,067 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% 7.9% Profit attributable to owners of the parent 1,196 549 951 -1,515 849 830 573 759 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% 5.6% 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 “-.” Quarterly performance figures calculated using differences in cumulative quarterly performance.

07/137 Monex Group / 8698 R LAST UPDATE: 2020.06.11 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 42,835 YoY 14.7% 14.7% 13.5% 12.1% -5.2% -4.9% -6.0% -4.2% Trading-related expenses 3,157 5,967 8,964 12,051 2,881 5,715 8,546 11,975 YoY 5.2% 3.5% 2.4% 0.7% -8.7% -4.2% -4.7% -0.6% Commissions paid 1,255 2,309 3,552 4,609 1,160 2,311 3,376 4,780 YoY 27.9% 18.8% 20.0% 11.7% -7.6% 0.1% -5.0% 3.7% Stock exchange and association fees 199 385 588 765 179 361 526 779 YoY -7.4% -12.7% -12.2% -14.7% -10.1% -6.2% -10.5% 1.8% Telecom, transportation, and information 898 1,791 2,634 3,686 905 1,714 2,576 3,443 YoY -21.2% -5.6% -2.2% 4.3% 0.8% -4.3% -2.2% -6.6% Advertising expenses 740 1,339 1,961 2,687 557 1,177 1,821 2,684 YoY 21.1% -2.0% -12.6% -14.9% -24.7% -12.1% -7.1% -0.1% Other expenses 65 143 229 305 80 153 246 288 YoY 22.6% 22.2% 23.1% 23.5% 23.1% 7.0% 7.4% -5.6% Personnel 3,275 6,459 9,860 13,111 3,375 6,650 9,817 13,413 YoY 29.2% 24.5% 22.5% 20.8% 3.1% 3.0% -0.4% 2.3% Real estate-related 1,221 2,510 3,756 5,058 1,018 2,081 3,145 4,228 YoY 38.9% 43.3% 39.8% 29.8% -16.6% -17.1% -16.3% -16.4% Real estate 302 590 905 1,235 102 199 269 339 YoY 34.2% 47.9% 45.0% 12.9% -66.2% -66.3% -70.3% -72.6% Furniture and fixtures 919 1,920 2,851 3,824 916 1,881 2,876 3,889 YoY 40.5% 41.9% 38.3% 36.4% -0.3% -2.0% 0.9% 1.7% Office expenses 723 1,434 2,226 2,986 669 1,264 1,837 2,444 YoY -3.1% 5.1% 9.0% 9.5% -7.5% -11.9% -17.5% -18.2% Outsourcing 707 1,404 2,177 2,923 651 1,228 1,780 2,367 YoY -3.0% 6.0% 10.1% 10.5% -7.9% -12.5% -18.2% -19.0% Supplies 16 30 49 63 18 36 57 77 YoY 0.0% -25.0% -23.4% -22.2% 12.5% 20.0% 16.3% 22.2% Depreciat ion 2,046 4,143 6,243 8,392 1,962 4,047 6,047 8,122 YoY -0.4% 1.4% 2.1% 3.4% -4.1% -2.3% -3.1% -3.2% Taxes and dues 175 331 481 621 182 337 502 693 YoY 12.2% 12.6% 4.8% 20.3% 4.0% 1.8% 4.4% 11.6% Others 659 1,349 1,869 2,470 579 1,019 1,489 1,959 YoY 47.4% 48.6% 39.8% 39.0% -12.1% -24.5% -20.3% -20.7% SG&A breakdown (quarterly) 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 11,452 YoY 14.7% 14.7% 11.1% 8.4% -5.2% -4.5% -8.4% 1.4% Trading-related expenses 3,157 2,810 2,997 3,087 2,881 2,834 2,831 3,429 YoY 5.2% 1.6% 0.3% -3.9% -8.7% 0.9% -5.5% 11.1% Commissions paid 1,255 1,054 1,243 1,057 1,160 1,151 1,065 1,404 YoY 27.9% 9.6% 22.2% -9.3% -7.6% 9.2% -14.3% 32.8% Stock exchange and association fees 199 186 203 177 179 182 165 253 YoY -7.4% -17.7% -11.4% -22.0% -10.1% -2.2% -18.7% 42.9% Telecom, transportation, and information 898 893 843 1,052 905 809 862 867 YoY -21.2% 17.8% 5.9% 24.9% 0.8% -9.4% 2.3% -17.6% Advertising expenses 740 599 622 726 557 620 644 863 YoY 21.1% -20.8% -29.1% -20.7% -24.7% 3.5% 3.5% 18.9% Other expenses 65 78 86 76 80 73 93 42 YoY 22.6% 21.9% 24.6% 24.6% 23.1% -6.4% 8.1% -44.7% Personnel expenses 3,275 3,184 3,401 3,251 3,375 3,275 3,167 3,596 YoY 29.2% 20.1% 18.9% 15.8% 3.1% 2.9% -6.9% 10.6% Real estate-related 1,221 1,289 1,246 1,302 1,018 1,063 1,064 1,083 YoY 38.9% 47.7% 33.4% 7.4% -16.6% -17.5% -14.6% -16.8% Real estate 302 288 315 330 102 97 70 70 YoY 34.2% 65.5% 40.0% -29.8% -66.2% -66.3% -77.8% -78.8% Furniture and fixtures 919 1,001 931 973 916 965 995 1,013 YoY 40.5% 43.2% 31.3% 31.1% -0.3% -3.6% 6.9% 4.1% Office expenses 723 711 792 760 669 595 573 607 YoY -3.1% 14.9% 17.0% 10.9% -7.5% -16.3% -27.7% -20.1% Outsourcing 707 697 773 746 651 577 552 587 YoY -3.0% 17.1% 18.2% 11.7% -7.9% -17.2% -28.6% -21.3% Supplies 16 14 19 14 18 18 21 20 YoY 0.0% -41.7% -20.8% -17.6% 12.5% 28.6% 10.5% 42.9% Depreciat ion 2,046 2,097 2,100 2,149 1,962 2,085 2,000 2,075 YoY -0.4% 3.1% 3.4% 7.5% -4.1% -0.6% -4.8% -3.4% Taxes and dues 175 156 150 140 182 155 165 191 YoY 12.2% 13.0% -9.1% 145.6% 4.0% -0.6% 10.0% 36.4% Others 659 690 520 601 579 440 470 470 YoY 47.4% 49.7% 21.2% 36.6% -12.1% -36.2% -9.6% -21.8% 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 “-.” Note: Quarterly performance figures calculated using differences in cumulative quarterly performance.

08/137 Monex Group / 8698 R LAST UPDATE: 2020.06.11 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

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

Cumulat ive Q4 FY03/19 Q1 FY03/20 Q2 FY03/20 Q3 FY03/20 Q4 FY03/20 (JPYmn) Japan US AP Japan US AP Japan US AP Japan US AP Japan US AP Operating revenue 27,729 22,798 829 6,119 5,915 206 12,320 11,919 422 19,125 17,356 601 26,393 23,645 887 YoY -11.1% 14.0% -11.7% -14.7% 8.4% 6.7% -13.0% 8.3% 1.7% -11.6% 1.7% -1.6% -4.8% 3.7% 7.0% Commissions received 13,301 12,014 406 2,737 2,860 93 5,483 5,730 186 8,797 8,428 276 12,615 12,270 454 YoY -21.6% 1.3% -27.1% -22.4% -7.1% -3.1% -20.2% -3.7% -11.8% -16.1% -8.1% -8.3% -5.2% 2.1% 11.8% Brokerage 10,650 8,573 404 2,127 2,136 93 4,267 4,268 185 6,997 6,156 274 10,295 8,837 451 YoY -24.4% 6.0% -27.1% -25.6% -3.7% -3.1% -22.6% 1.3% -11.5% -17.1% -6.4% -8.4% -3.3% 3.1% 11.6% Equity and ETF 10,339 2,033 404 2,061 466 93 4,130 921 185 6,791 1,302 274 9,926 1,895 451 Futures and options 311 6,540 - 66 1,670 - 137 3,348 - 206 4,855 - 368 6,942 - OSE FX ------2 - Underw rit ing and dist ribut ion 70 - - 32 - - 56 - - 78 - - 104 - - Subscript ion and dist ribut ion 355 - - 58 - - 119 - - 173 - - 175 - - Ot her commissions 2,226 3,442 1 519 724 - 1,040 1,461 - 1,548 2,270 2 2,040 3,430 2 YoY -1.3% -8.6% -66.7% -9.9% -16.0% - -10.7% -15.8% - -8.5% -12.7% 100.0% -8.4% -0.3% 100.0% Net t rading income 4,534 - -3 1,104 - - 2,330 - -0 3,524 - - 5,030 - - YoY 17.3% - - 17.1% - - 11.4% - - 4.4% - - 10.9% - - Financial income 9,807 9,221 301 2,252 2,705 81 4,463 5,406 163 6,735 7,873 213 8,651 9,965 280 YoY 1.7% 32.8% 32.6% -15.9% 33.1% 32.8% -13.5% 23.9% 23.5% -12.7% 17.8% 0.9% -11.8% 8.1% -7.0% Other operating revenue 85 1,282 126 26 281 32 45 519 73 68 744 112 95 999 153 Financial expenses 1,989 3,214 22 521 860 10 1,093 1,769 130 1,604 2,645 244 2,050 3,396 252 Net operating revenue 25,739 19,338 808 5,598 4,996 195 11,227 9,921 292 17,520 14,435 357 24,341 19,887 634 YoY -11.3% 11.0% -13.2% -15.6% 8.2% 1.6% -14.4% 7.4% -29.3% -12.8% 0.6% -40.4% -5.4% 2.8% -21.5% SG&A expenses 23,013 17,250 883 5,194 4,364 212 10,442 8,699 437 15,808 12,926 645 21,671 17,877 898 YoY -1.7% 4.6% -4.2% -11.0% -0.6% 2.4% -9.6% 0.8% 0.2% -8.7% -0.7% -1.4% -5.8% 3.6% 1.7% % of net operating revenue 89.4% 89.2% 109.3% 92.8% 87.3% 108.7% 93.0% 87.7% 149.7% 90.2% 89.5% 180.7% 89.0% 89.9% 141.6% Operat ing profit equivalent 2,727 2,088 -75 404 633 -16 785 1,221 -145 1,712 1,509 -288 2,670 2,010 -263 YoY -51.4% 124.3% - -49.4% 175.2% - -49.6% 101.5% - -38.4% 13.1% - -2.1% -3.7% - % of net operating revenue 10.6% 10.8% - 7.2% 12.7% - 7.0% 12.3% - 9.8% 10.5% - 11.0% 10.1% - Other revenue 1,943 - 31 94 - 10 171 - 17 165 - 31 469 - 48 Other expenses 3,422 110 4 41 13 7 70 28 5 90 30 15 889 247 15 Pre-tax profit 1,246 1,977 -48 457 620 -13 886 1,194 -132 1,787 1,480 -271 2,250 1,764 -230 YoY -78.5% 601.1% - -52.3% 196.7% - -50.7% 109.5% - -39.1% 20.5% - 80.6% -10.8% - % of net operating revenue 4.8% 10.2% - 8.2% 12.4% - 7.9% 12.0% - 10.2% 10.3% - 9.2% 8.9% - Profit 1,131 1,439 -14 268 464 -16 533 1,008 -119 1,109 1,251 -240 1,379 1,418 -208 YoY -70.3% 13.0% - -73.8% 142.9% - -65.9% 127.0% - -52.1% 37.3% - 21.9% -1.5% - Profit attributable to owners of the parent 1,284 1,439 -14 313 464 -16 624 1,008 -119 1,247 1,251 -240 1,569 1,418 -208 YoY -67.6% 13.0% - -70.3% 142.9% - -61.8% 127.0% - -48.5% 37.3% - 22.2% -1.5% - % of net operating revenue 5.0% 7.4% - 5.6% 9.3% - 5.6% 10.2% - 7.1% 8.7% - 6.4% 7.1% - Quarterly Q4 FY03/19 Q1 FY03/20 Q2 FY03/20 Q3 FY03/20 Q4 FY03/20 (JPYmn) Japan US AP Japan US AP Japan US AP Japan US AP Japan US AP Operating revenue 6,093 5,725 219 6,119 5,915 206 6,201 6,004 216 6,805 5,437 179 7,268 6,289 286 YoY -22.1% 5.5% -10.2% -14.7% 8.4% 6.7% -11.3% 8.2% -2.7% -9.0% -10.4% -8.7% 19.3% 9.9% 30.6% Commissions received 2,816 2,840 105 2,737 2,860 93 2,746 2,869 92 3,314 2,697 91 3,818 3,841 177 YoY -35.3% -16.0% -31.4% -22.4% -7.1% -3.1% -17.8% 0.0% -19.3% -8.4% -16.4% 1.1% 35.6% 35.2% 68.6% Brokerage 2,212 1,998 105 2,127 2,136 93 2,140 2,132 92 2,730 1,888 89 3,298 2,681 177 YoY -38.0% -19.3% -31.4% -25.6% -3.7% -3.1% -19.3% 6.8% -18.6% -6.8% -20.1% -1.1% 49.1% 34.2% 68.6% Equity and ETF 2,145 503 105 2,061 466 93 2,069 455 92 2,661 381 89 3,135 593 177 Futures and options 67 1,495 - 66 1,670 - 71 1,678 - 69 1,507 - 162 2,087 - OSE FX ------2 - Underw rit ing and dist ribut ion 13 - - 32 - - 24 - - 22 - - 26 - - Subscript ion and dist ribut ion 56 - - 58 - - 61 - - 54 - - 2 - - Ot her commissions 535 842 - 519 724 - 521 737 - 508 809 2 492 1,160 - YoY -10.7% -6.9% - -9.9% -16.0% - -11.5% -15.7% - -3.4% -6.4% - -8.0% 37.8% - Net t rading income 1,158 - - 1,104 - - 1,226 - -0 1,194 - - 1,506 - - YoY 19.1% - - 17.1% - - 6.7% - - -7.0% - - 30.1% - - Financial income 2,095 2,537 90 2,252 2,705 81 2,211 2,701 82 2,272 2,466 50 1,916 2,092 67 YoY -15.4% 48.9% 69.8% -15.9% 33.1% 32.8% -10.8% 15.8% 15.5% -11.0% 6.3% -36.7% -8.5% -17.5% -25.6% Other operating revenue 23 314 24 26 281 32 19 238 42 23 225 38 27 255 41 Financial expenses 446 710 10 521 860 10 572 909 120 511 877 114 446 750 8 Net operating revenue 5,647 4,985 209 5,598 4,996 195 5,629 4,925 96 6,293 4,514 65 6,821 5,451 278 YoY -21.8% 4.0% -14.0% -15.6% 8.2% 1.6% -13.1% 6.6% -56.6% -9.9% -11.7% -65.1% 20.8% 9.3% 33.0% SG&A expenses 5,698 4,231 228 5,194 4,364 212 5,248 4,336 225 5,366 4,227 208 5,863 4,951 253 YoY -10.4% 3.8% 3.6% -11.0% -0.6% 2.4% -8.2% 2.2% -1.3% -6.9% -3.7% -5.0% 2.9% 17.0% 11.0% % of net operating revenue 100.9% 84.9% 109.1% 92.8% 87.3% 108.7% 93.2% 88.0% 234.4% 85.3% 93.6% 320.0% 86.0% 90.8% 91.0% Operat ing profit equivalent -51 754 -19 404 633 -16 381 589 -129 927 287 -143 958 501 25 YoY - 5.8% - -49.4% 175.2% - -49.9% 56.2% - -24.0% -60.6% - - -33.6% - % of net operating revenue - 15.1% - 7.2% 12.7% - 6.8% 12.0% - 14.7% 6.4% - 14.0% 9.2% 9.0% Other revenue 149 - 12 94 - 10 77 - 7 -6 - 14 304 - 17 Other expenses 1,785 5 -4 41 13 7 29 15 -2 20 2 10 799 217 - Pre-tax profit -1,687 749 -4 457 620 -13 429 574 -119 901 286 -139 463 284 41 YoY - 912.2% - -52.3% 196.7% - -48.8% 59.0% - -20.7% -56.5% - - -62.1% - % of net operating revenue - 15.0% - 8.2% 12.4% - 7.6% 11.7% - 14.3% 6.3% - 6.8% 5.2% 14.7% Profit -1,186 528 41 268 464 -16 265 544 -103 576 243 -121 270 167 32 YoY - 560.0% 2.5% -73.8% 142.9% - -50.8% 115.0% - -23.6% -48.0% - - -68.4% -22.0% Profit attributable to owners of the parent -1,139 528 41 313 464 -16 311 544 -103 623 243 -121 322 167 32 YoY - 560.0% 2.5% -70.3% 142.9% - -46.1% 115.0% - -21.2% -48.0% - - -68.4% -22.0% % of net operating revenue - 10.6% 19.6% 5.6% 9.3% - 5.5% 11.0% - 9.9% 5.4% - 4.7% 3.1% 11.5% 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.

09/137 Monex Group / 8698 R LAST UPDATE: 2020.06.11 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

Results by segment (Crypto Asset and Investment segments)

Cumulat ive Q4 FY03/19 Q1 FY03/20 Q2 FY03/20 Q3 FY03/20 Q4 FY03/20 Crypto Crypto Crypto Crypto Crypto (JPYmn) Investment Investment Investment Investment Investment Asset Asset Asset Asset Asset Operating revenue 2,117 414 1,275 12 2,077 154 2,558 120 3,815 149 YoY - -85.1% 35.4% -94.6% 65.2% -51.1% 41.6% -63.1% 80.2% -64.0% Commissions received 186 - 75 - 153 - 200 - 288 - YoY - - -20.2% - 9.3% - 20.5% - 54.8% - Brokerage 3 - 29 - 43 - 46 - 50 - YoY - - - - 2050.0% - 1433.3% - 1566.7% - Equity and ETF ------Futures and options ------OSE FX 3 - 29 - 43 - 46 - 50 - Underw rit ing and dist ribut ion ------Subscript ion and dist ribut ion ------Ot her commissions 183 - 46 - 110 - 154 - 238 - YoY - - -50.0% - -19.1% - -5.5% - 30.1% - Net t rading income 1,929 - 1,200 - 1,924 - 2,359 - 3,529 - YoY - - 41.5% - 72.2% - 43.9% - 82.9% - Financial income - 414 - 12 - 154 - 120 - 149 YoY - -85.1% - -94.6% - -51.1% - -63.1% - -64.0% Other operating revenue ------Financial expenses 38 - 1 - 1 - 2 - 3 - Net operating revenue 2,077 414 1,274 12 2,075 154 2,556 120 3,812 149 YoY - -85.1% 35.2% -94.6% 65.1% -51.1% 44.0% -63.1% 83.5% -64.0% SG&A expenses 4,766 24 1,127 14 1,932 25 2,515 40 3,502 54 YoY - 60.0% -6.9% - -13.9% 525.0% -25.9% 471.4% -26.5% 125.0% % of net operating revenue 229.5% 5.8% 88.5% 116.7% 93.1% 16.2% 98.4% 33.3% 91.9% 36.2% Operat ing profit equivalent -2,689 391 147 -2 143 129 41 79 310 94 YoY - -85.8% - - - -58.4% - -75.2% - -76.0% % of net operating revenue - 94.4% 11.5% - 6.9% 83.8% 1.6% 65.8% 8.1% 63.1% Other revenue 975 1 4 - 9 - 10 - 11 - Other expenses 19 8 8 - - - 27 - 28 - Pre-tax profit -1,731 383 142 -2 151 129 24 79 293 94 YoY - -86.2% - - - -60.8% - -74.4% - -75.5% % of net operating revenue - 92.5% 11.1% - 7.3% 83.8% 0.9% 65.8% 7.7% 63.1% Profit -1,825 326 99 -4 120 79 -18 47 224 47 YoY - -81.4% - - - -73.4% - -83.2% - -85.6% Profit attributable to owners of the parent -1,825 326 99 -4 120 79 -18 47 224 47 YoY - -81.4% - - - -73.4% - -83.2% - -85.6% % of net operating revenue - 78.7% 7.8% - 5.8% 51.3% - 39.2% 5.9% 31.5% Quarterly Q4 FY03/19 Q1 FY03/20 Q2 FY03/20 Q3 FY03/20 Q4 FY03/20 Crypto Crypto Crypto Crypto Crypto (JPYmn) Investment Investment Investment Investment Investment Asset Asset Asset Asset Asset Operating revenue 310 89 1,275 12 802 142 481 -34 1,257 29 YoY - -95.8% 35.4% -94.6% 154.6% 52.7% -12.5% - 305.5% -67.4% Commissions received 20 - 75 - 78 - 47 - 88 - YoY - - -20.2% - 69.6% - 80.8% - 340.0% - Brokerage - - 29 - 14 - 3 - 4 - YoY ------200.0% - - - Equity and ETF ------Futures and options ------OSE FX - - 29 - 14 - 3 - 4 - Underw rit ing and dist ribut ion ------Subscript ion and dist ribut ion ------Ot her commissions 20 - 46 - 64 - 44 - 84 - YoY - - -50.0% - 45.5% - 63.0% - 320.0% - Net t rading income 290 - 1,200 - 724 - 435 - 1,170 - YoY - - 41.5% - 169.1% - -16.7% - 303.4% - Financial income - 89 - 12 - 142 - -34 - 29 YoY - -95.8% - -94.6% - 52.7% - - - -67.4% Other operating revenue ------Financial expenses 7 - 1 - - - 1 - 1 - Net operating revenue 302 89 1,274 12 801 142 481 -34 1,256 29 YoY - -95.8% 35.2% -94.6% 154.3% 52.7% -7.1% - 315.9% -67.4% SG&A expenses 1,373 17 1,127 14 805 11 583 15 987 14 YoY - 70.0% -6.9% 600.0% -22.1% 266.7% -49.3% 400.0% -28.1% -17.6% % of net operating revenue 454.6% 19.1% 88.5% 116.7% 100.5% 7.7% 121.2% -44.1% 78.6% 48.3% Operat ing profit equivalent -1,071 73 147 -2 -4 131 -102 -50 269 15 YoY - -96.5% - - - 45.6% - - - -79.5% % of net operating revenue - 82.0% 11.5% - - 92.3% - - 21.4% 51.7% Other revenue 527 - 4 - 5 - 1 - 1 - Other expenses 17 -1 8 - -8 - 27 - 1 - Pre-tax profit -560 74 142 -2 9 131 -127 -50 269 15 YoY - -96.5% - - - 36.5% - - - -79.7% % of net operating revenue - 83.1% 11.1% - 1.1% 92.3% - - 21.4% 51.7% Profit -989 47 99 -4 21 83 -138 -32 242 - YoY - -96.5% - - - -41.1% - - - - Profit attributable to owners of the parent -989 47 99 -4 21 83 -138 -32 242 - YoY - -96.5% - - - -41.1% - - - - % of net operating revenue - 52.8% 7.8% - 2.6% 58.5% - - 19.3% - 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.

10/137 Monex Group / 8698 R LAST UPDATE: 2020.06.11 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage

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

SG&A breakdown (cumulative) Q4 FY03/19 Q1 FY03/20 Q2 FY03/20 Q3 FY03/20 Q4 FY03/20 (JPYmn) Japan US AP Japan US AP Japan US AP Japan US AP Japan US AP SG&A expenses 23,013 17,250 883 5,194 4,364 212 10,442 8,699 437 15,808 12,926 645 21,671 17,877 898 YoY -1.7% 4.6% -4.2% -11.0% -0.6% 2.4% -9.6% 0.8% 0.2% -8.7% -0.7% -1.4% -5.8% 3.6% 1.7% Trading-related expenses 5,134 6,126 269 1,147 1,476 61 2,324 2,942 128 3,593 4,329 190 5,107 6,098 273 YoY -11.3% 1.4% -19.2% -16.3% -8.6% 0.0% -9.3% -4.2% -1.5% -6.8% -5.9% -1.6% -0.5% -0.5% 1.5% Commissions paid 1,414 3,129 42 323 816 11 658 1,629 23 997 2,369 34 1,454 3,385 55 Stock exchange and association fees 645 121 0 146 33 0 294 67 0 460 66 0 681 98 0 Telecom, transportation, and information 1,731 1,483 96 418 327 25 844 644 50 1,283 966 77 1,745 1,268 104 Advertising expenses 1,212 1,264 124 236 253 25 483 510 54 757 801 78 1,115 1,200 111 Other 132 132 5 24 47 0 45 91 1 96 126 1 112 146 2 Personnel 4,046 6,943 390 1,074 1,797 98 2,172 3,558 199 3,309 5,233 288 4,511 7,216 400 YoY 0.4% 7.3% 9.6% 4.7% 2.9% 2.1% 7.7% 2.8% -1.5% 7.9% -1.1% -4.0% 11.5% 3.9% 2.6% Real estate-related 4,359 1,085 67 918 205 5 1,847 427 9 2,766 675 13 3,728 935 17 YoY 21.8% 7.2% 1.5% -14.7% -21.5% -68.8% -16.6% -19.7% -72.7% -15.3% -16.7% -74.0% -14.5% -13.8% -74.6% Real estate 538 353 62 47 27 4 94 53 7 136 83 10 190 112 13 Furniture and fixtures 3,823 732 5 871 178 1 1,753 375 2 2,630 593 3 3,538 823 5 Office and supplies 2,006 22 46 490 6 9 976 13 24 1,461 22 35 1,978 29 50 YoY -24.8% -26.7% 48.4% -2.2% 20.0% 28.6% -2.4% 30.0% 41.2% -4.3% 37.5% 16.7% -1.4% 31.8% 8.7% Outsourcing 1,967 0 44 478 0 9 953 0 24 1,427 0 35 1,933 0 49 Supplies 39 22 2 11 6 0 22 13 0 33 22 1 45 29 2 Depreciat ion 6,094 2,094 72 1,172 608 30 2,451 1,232 60 3,691 1,870 90 5,008 2,506 119 YoY 1.0% 4.5% -11.1% -22.7% 21.6% 66.7% -19.6% 20.2% 66.7% -19.3% 19.9% 66.7% -17.8% 19.7% 65.3% Taxes and dues 553 28 0 156 9 0 280 34 0 418 48 0 593 55 0 Other 818 950 39 238 263 8 393 493 16 569 749 27 744 1,038 37 SG&A breakdown (quarterly) Q4 FY03/19 Q1 FY03/20 Q2 FY03/20 Q3 FY03/20 Q4 FY03/20 (JPYmn) Japan US AP Japan US AP Japan US AP Japan US AP Japan US AP SG&A expenses 5,698 4,231 228 5,194 4,364 212 5,248 4,336 225 5,366 4,227 208 5,863 4,951 253 YoY -10.4% 3.8% 3.6% -11.0% -0.6% 2.4% -8.2% 2.2% -1.3% -6.9% -3.7% -5.0% 2.9% 17.0% 11.0% Trading-related expenses 1,280 1,526 76 1,147 1,476 61 1,177 1,466 67 1,269 1,387 62 1,514 1,769 83 YoY -22.0% -0.8% -2.6% -16.3% -8.6% 0.0% -1.2% 0.8% -2.9% -1.8% -9.3% -1.6% 18.3% 15.9% 9.2% Commissions paid 340 695 10 323 816 11 335 813 12 339 740 11 457 1016 21 Stock exchange and association fees 147 29 0 146 33 0 148 34 0 166 -1 0 221 32 0 Telecom, transportation, and information 461 440 24 418 327 25 426 317 25 439 322 27 462 302 27 Advertising expenses 294 333 41 236 253 25 247 257 29 274 291 24 358 399 33 Other 37 29 1 24 47 0 21 44 1 51 35 0 16 20 1 Personnel 979 1,651 90 1,074 1,797 98 1,098 1,761 101 1,137 1,675 89 1,202 1,983 112 YoY -4.3% -2.6% -1.1% 4.7% 2.9% 2.1% 10.8% 2.7% -4.7% 8.3% -8.6% -9.2% 22.8% 20.1% 24.4% Real estate-related 1,093 275 17 918 205 5 929 222 4 919 248 4 962 260 4 YoY -3.5% 6.6% 6.3% -14.7% -21.5% -68.8% -18.4% -18.1% -76.5% -12.6% -10.8% -76.5% -12.0% -5.5% -76.5% Real estate 139 89 16 47 27 4 47 26 3 42 30 3 54 29 3 Furniture and fixtures 954 186 1 871 178 1 882 197 1 877 218 1 908 230 2 Office and supplies 479 6 16 490 6 9 486 7 15 485 9 11 517 7 15 YoY -28.8% 0.0% 128.6% -2.2% 20.0% 28.6% -2.6% 40.0% 50.0% -8.0% 50.0% -15.4% 7.9% 16.7% -6.3% Outsourcing 471 0 16 478 0 9 475 0 15 474 0 11 506 0 14 Supplies 8 6 0 11 6 0 11 7 0 11 9 1 12 7 1 Depreciat ion 1,523 534 18 1,172 608 30 1,279 624 30 1,240 638 30 1,317 636 29 YoY 1.5% 11.0% 0.0% -22.7% 21.6% 66.7% -16.6% 18.9% 66.7% -18.5% 19.3% 66.7% -13.5% 19.1% 61.1% Taxes and dues 127 7 0 156 9 0 124 25 0 138 14 0 175 7 0 Others 217 233 10 238 263 8 155 230 8 176 256 11 175 289 10 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.

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

SG&A breakdown (cumulative) Q4 FY03/19 Q1 FY03/20 Q2 FY03/20 Q3 FY03/20 Q4 FY03/20 Crypto Crypto Crypto Crypto Crypto (JPYmn) Investment Investment Investment Investment Investment Asset Asset Asset Asset Asset SG&A expenses 4,766 24 1,127 14 1,932 25 2,515 40 3,502 54 YoY - 84.6% -6.9% - -13.9% 525.0% -25.9% 471.4% -26.5% 125.0% Trading-related expenses 709 4 245 3 425 4 594 8 781 10 YoY - -55.6% 61.2% 200.0% 43.6% 100.0% 27.7% 100.0% 10.2% 150.0% Commissions paid 214 2 60 1 106 1 135 2 166 2 Stock exchange and association fees ------Telecom, transportation, and information 377 - 135 - 176 - 251 - 327 - Advertising expenses 84 2 42 1 129 1 188 3 263 4 Other 35 - 8 1 14 2 19 3 23 4 Personnel 1,726 5 399 7 707 13 965 20 1,286 28 YoY - 400.0% -1.7% - -9.2% - -19.6% - -25.5% 460.0% Real estate-related 282 - 25 - 46 - 40 - 36 - YoY - - -64.8% - -62.3% - -79.6% - -87.2% - Real estate 282 - 25 - 46 - 40 - 36 - Furniture and fixtures ------Office and supplies 911 2 163 1 248 2 314 4 380 6 YoY - - -22.4% - -39.2% - -51.9% - -58.3% 200.0% Outsourcing 911 2 163 1 248 2 314 4 380 6 Supplies ------Depreciat ion 132 - 152 - 305 - 397 - 490 - YoY - - - - 824.2% - 584.5% - 271.2% - Taxes and dues 38 2 16 1 22 2 33 4 41 6 Other 968 11 127 1 179 2 174 3 490 4 SG&A breakdown (quarterly) Q4 FY03/19 Q1 FY03/20 Q2 FY03/20 Q3 FY03/20 Q4 FY03/20 Crypto Crypto Crypto Crypto Crypto (JPYmn) Investment Investment Investment Investment Investment Asset Asset Asset Asset Asset SG&A expenses 1,373 17 1,127 14 805 11 583 15 987 14 YoY - 88.9% -6.9% - -22.1% 266.7% -49.3% 400.0% -28.1% -17.6% Trading-related expenses 244 - 245 3 180 1 169 4 187 2 YoY - - 61.2% 200.0% 25.0% 0.0% 0.0% 100.0% -23.4% - Commissions paid 54 -2 60 1 46 - 29 1 31 - Stock exchange and association fees 0 - 0 - 0 - 0 - 0 - Telecom, transportation, and information 127 - 135 - 41 - 75 - 76 - Advertising expenses 56 2 42 1 87 - 59 2 75 1 Other 8 - 8 1 6 1 5 1 4 1 Personnel 526 5 399 7 308 6 258 7 321 8 YoY - - -1.7% - -17.4% - -38.7% - -39.0% 60.0% Real estate-related 86 - 25 - 21 - -6 - -4 - YoY - - -64.8% - -58.8% - - - - - Real estate 86 - 25 - 21 - -6 - -4 - Furniture and fixtures 0 - 0 - 0 - 0 - 0 - Office and supplies 258 3 163 1 85 1 66 2 66 2 YoY - - -22.4% - -57.1% - -73.1% - -74.4% -33.3% Outsourcing 258 3 163 1 85 1 66 2 66 2 Supplies 0 - 0 - 0 - 0 - 0 - Depreciat ion 74 - 152 - 153 - 92 - 93 - YoY - - - - 628.6% - 268.0% - 25.7% - Taxes and dues 5 2 16 1 6 1 11 2 8 2 Other 180 7 127 1 52 1 -5 1 316 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.

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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 27,987 YoY 0.4% -2.0% -6.9% -10.6% -12.9% -11.5% -9.9% -3.5% Net operating revenue 6,713 13,267 20,324 26,045 5,703 11,456 17,795 24,708 YoY 0.3% -2.1% -7.3% -11.4% -15.0% -13.7% -12.4% -5.1% Commissions received 3,538 6,892 10,523 13,369 2,748 5,509 8,862 12,721 YoY -9.7% -13.9% -17.1% -21.8% -22.3% -20.1% -15.8% -4.8% Brokerage 2,885 5,564 8,522 10,778 2,154 4,325 7,106 10,458 YoY -12.3% -15.9% -19.7% -24.3% -25.3% -22.3% -16.6% -3.0% Equity and ETF 2,819 5,429 8,278 10,467 2,088 4,188 6,900 10,090 YoY -12.1% -15.9% -20.1% -24.6% -25.9% -22.9% -16.6% -3.6% Futures and options 66 135 244 310 66 137 205 367 YoY -19.5% -14.6% -3.2% -10.9% 0.0% 1.5% -16.0% 18.4% Underw rit ing and dist ribut ion 22 31 56 69 32 56 78 104 YoY 340.0% -75.2% -64.1% -59.6% 45.5% 80.6% 39.3% 50.7% Subscript ion and dist ribut ion 70 161 298 355 58 118 173 175 YoY -20.5% -2.4% 4.6% -22.5% -17.1% -26.7% -41.9% -50.7% Ot her commissions 560 1,135 1,645 2,165 503 1,009 1,503 1,982 YoY 5.5% 3.7% 0.7% -2.4% -10.2% -11.1% -8.6% -8.5% Net t rading income 943 2,092 3,372 4,530 1,103 2,328 3,522 5,028 YoY 6.9% 16.0% 18.8% 17.3% 17.0% 11.3% 4.4% 11.0% Financial income 3,246 5,811 8,843 11,018 2,873 5,252 8,084 10,134 YoY 12.4% 10.0% 7.0% 2.2% -11.5% -9.6% -8.6% -8.0% Other operating revenue 20 46 70 96 25 51 76 103 YoY -28.6% -14.8% -90.0% -86.7% 25.0% 10.9% 8.6% 7.3% SG&A expenses 5,932 11,726 17,593 23,282 5,181 10,521 15,940 22,028 YoY 2.5% 1.5% -0.8% -3.1% -12.7% -10.3% -9.4% -5.4% % of net operating revenue 88.4% 88.4% 86.6% 89.4% 90.8% 91.8% 89.6% 89.2% Operating profit 781 1,540 2,731 2,762 521 934 1,855 2,680 YoY -13.4% -22.5% -34.6% -48.6% -33.3% -39.4% -32.1% -3.0% % of net operating revenue 11.6% 11.6% 13.4% 10.6% 9.1% 8.2% 10.4% 10.8% Pre-tax profit 828 1,597 2,794 964 532 948 1,877 2,422 YoY -15.9% -23.8% -34.5% -82.2% -35.7% -40.6% -32.8% 151.2% % of net operating revenue 12.3% 12.0% 13.7% 3.7% 9.3% 8.3% 10.5% 9.8% Net income 576 1,100 1,931 688 373 653 1,290 1,662 YoY -16.9% -23.9% -34.4% -81.6% -35.2% -40.6% -33.2% 141.6% % of net operating revenue 8.6% 8.3% 9.5% 2.6% 6.5% 5.7% 7.2% 6.7% 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 7,441 YoY 0.4% -4.4% -14.8% -22.1% -12.9% -9.9% -7.0% 19.9% Net operating revenue 6,713 6,554 7,057 5,721 5,703 5,753 6,339 6,913 YoY 0.3% -4.4% -15.7% -23.5% -15.0% -12.2% -10.2% 20.8% Commissions 3,538 3,354 3,631 2,846 2,748 2,761 3,353 3,859 YoY -9.7% -17.9% -22.5% -35.3% -22.3% -17.7% -7.7% 35.6% YoY 2,885 2,679 2,958 2,256 2,154 2,171 2,781 3,352 YoY -12.3% -19.4% -26.1% -37.8% -25.3% -19.0% -6.0% 48.6% Equity and ETF 2,819 2,610 2,849 2,189 2,088 2,100 2,712 3,190 YoY -12.1% -19.6% -27.1% -38.0% -25.9% -19.5% -4.8% 45.7% Futures and options 66 69 109 66 66 71 68 162 YoY -19.5% -9.2% 16.0% -31.3% 0.0% 2.9% -37.6% 145.5% Underw rit ing and dist ribut ion 22 9 25 13 32 24 22 26 YoY 340.0% -92.5% -19.4% -13.3% 45.5% 166.7% -12.0% 100.0% Subscript ion and dist ribut ion 70 91 137 57 58 60 55 2 YoY -20.5% 18.2% 14.2% -67.1% -17.1% -34.1% -59.9% -96.5% Ot her commissions 560 575 510 520 503 506 494 479 YoY 5.5% 2.1% -5.4% -11.1% -10.2% -12.0% -3.1% -7.9% Net t rading income 943 1,149 1,280 1,158 1,103 1,225 1,194 1,506 YoY 6.9% 24.6% 23.7% 13.2% 17.0% 6.6% -6.7% 30.1% Financial income 3,246 2,565 3,032 2,175 2,873 2,379 2,832 2,050 YoY 12.4% 7.2% 1.7% -13.7% -11.5% -7.3% -6.6% -5.7% Other operating revenue 20 26 24 26 25 26 25 27 YoY -28.6% 0.0% -96.3% 4.0% 25.0% 0.0% 4.2% 3.8% SG&A expenses 5,932 5,794 5,867 5,689 5,181 5,340 5,419 6,088 Taxes and dues 2.5% 0.4% -5.1% -9.4% -12.7% -7.8% -7.6% 7.0% % of net operating revenue 88.4% 88.4% 83.1% 99.4% 90.8% 92.8% 85.5% 88.1% Operating profit 781 759 1,191 31 521 413 921 825 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% 11.9% Pre-tax profit 828 769 1,197 -1,830 532 416 929 545 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% 7.9% Net income 576 524 831 -1,243 373 280 637 372 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% 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 “-.”

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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 56.8 112.3 175.4 251.8 YoY 3.7% 0.6% -7.0% -13.5% -21.3% -19.3% -17.4% -8.2% Monex, Inc. share 5.3% 5.2% 5.2% 5.2% 5.1% 5.1% 5.2% 5.4% Monex, Inc. equity and ETF trading value (JPYtn) 3.8 7.3 11.1 14.2 2.9 5.8 9.1 13.5 YoY -0.5% -1.8% -8.0% -15.5% -24.1% -20.9% -17.5% -4.4% Cash 1.8 3.4 5.2 6.5 1.2 2.4 3.9 5.9 YoY -15.9% -18.3% -22.1% -27.4% -33.0% -29.0% -24.3% -10.0% Margin 2.0 3.9 5.9 7.7 1.7 3.3 5.2 7.7 YoY 19.3% 19.3% 9.4% -1.8% -15.9% -13.8% -11.5% 0.3% Equit y brokerage commission rat e 0.074% 0.075% 0.075% 0.074% 0.072% 0.073% 0.076% 0.075% Metrics related to net trading income FX trading value (JPYtn) 7.4 14.3 25.2 39.7 12.8 29.3 43.4 71.7 YoY 11.0% 4.9% 18.2% 27.7% 73.0% 104.3% 72.6% 80.6% Met rics relat ed t o net financial income Margin trading balance (JPYbn) 201 178 158 157 152 153 161 127 YoY 21.5% 9.1% -16.4% -23.6% -24.1% -14.4% 1.9% -19.2% Avg. margin trading balance (month end; JPYbn) 203 192 187 179 152 154 155 154 YoY 26.9% 17.1% 10.3% 0.8% -25.2% -20.1% -16.9% -13.9% (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 76.4 YoY 3.7% -2.5% -18.8% -30.0% -21.3% -17.1% -13.7% 23.2% Monex, Inc. share 5.3% 5.2% 5.2% 5.0% 5.1% 5.2% 5.4% 5.8% Monex, Inc. equity and ETF trading value (JPYtn) 3.8 3.5 3.8 3.1 2.9 2.9 3.4 4.4 YoY -0.5% -3.2% -17.9% -34.6% -24.1% -17.4% -11.0% 42.5% Cash 1.8 1.6 1.8 1.3 1.2 1.2 1.5 1.9 YoY -15.9% -20.9% -28.5% -42.6% -33.0% -24.5% -15.4% 46.0% Margin 2.0 1.9 2.0 1.8 1.7 1.7 1.9 2.5 YoY 19.3% 19.4% -5.7% -26.8% -15.9% -11.4% -7.1% 39.8% Equit y brokerage commission rat e 0.074% 0.075% 0.075% 0.071% 0.072% 0.073% 0.073% 0.072% Metrics related to net trading income FX trading value (JPYtn) 7.4 6.9 10.8 14.5 12.8 16.5 14.1 28.3 YoY 11.0% -0.9% 41.9% 48.4% 73.0% 137.8% 30.6% 94.3% Margin transaction balance and market share (lon Margin trading balance (JPYbn) 201 178 158 157 152 153 161 127 YoY 21.5% 9.1% -16.4% -23.6% -24.1% -14.4% 1.9% -19.2% Avg. margin trading balance (month end; JPYbn) 203 182 175 157 152 156 158 152 YoY 26.9% 7.8% -2.1% -23.0% -25.2% -14.4% -10.0% -3.2% 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.

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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 53,939 109,522 159,497 217,680 YoY 16.8% 15.1% 18.1% 14.0% 7.5% 9.7% 3.6% 5.7% Commissions received 28,297 53,949 82,759 108,485 26,083 52,654 77,450 112,957 YoY 8.5% 5.4% 9.1% 1.3% -7.8% -2.4% -6.4% 4.1% Brokerage 20,377 38,211 59,310 77,410 19,477 39,222 56,580 81,367 YoY 19.4% 13.6% 18.1% 6.0% -4.4% 2.6% -4.6% 5.1% Equity and ETF 4,731 8,989 13,802 18,358 4,248 8,460 11,964 17,443 Futures and options 15,646 29,221 45,507 59,051 15,229 30,762 44,614 63,904 Ot her commissions 7,920 15,738 23,449 31,075 6,606 13,432 20,870 31,590 YoY -12.1% -10.3% -8.4% -8.6% -16.6% -14.7% -11.0% 1.7% Net t rading income ------Financial income 18,680 39,581 60,291 83,264 24,667 49,677 72,349 91,736 YoY 29.3% 29.9% 28.5% 32.8% 32.1% 25.5% 20.0% 10.2% Sales revenue 178 268 2,231 2,544 625 2,422 2,863 3,792 Other operating revenue 3,007 6,007 8,723 11,572 2,565 4,771 6,837 9,198 Financial expenses 7,549 15,784 22,587 29,025 7,839 16,253 24,310 31,262 Cost of revenue 155 233 1,944 2,216 544 2,109 2,530 3,340 Net operating revenue 42,458 83,787 129,471 174,621 45,557 91,162 132,659 183,081 YoY 12.1% 11.1% 14.6% 11.0% 7.3% 8.8% 2.5% 4.8% SG&A expenses 40,345 78,287 117,437 155,763 39,789 79,938 118,792 164,580 YoY 6.6% 6.1% 5.8% 4.6% -1.4% 2.1% 1.2% 5.7% Operat ing profit equivalent 2,113 5,500 12,034 18,858 5,768 11,224 13,867 18,501 Yoy - 232.9% 518.1% 124.4% 173.0% 104.1% 15.2% -1.9% Other revenue 1 1 1 1 3 6 9 11 Other expenses 193 329 953 1,001 118 259 278 2,278 Pre-tax profit 1,921 5,172 11,082 17,858 5,653 10,971 13,598 16,234 YoY - 221.2% 496.4% 602.5% 194.3% 112.1% 22.7% -9.1% Profit 1,757 4,025 8,218 12,996 4,232 9,262 11,495 13,053 YoY - 111.6% -23.1% 13.0% 140.9% 130.1% 39.9% 0.4% Profit attributable to owners of the parent 1,757 4,025 8,218 12,996 4,232 9,262 11,495 13,053 YoY - 111.6% -23.1% 13.0% 140.9% 130.1% 39.9% 0.4% 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 58,183 YoY 16.8% 13.5% 24.0% 3.3% 7.5% 12.0% -7.8% 12.2% Commissions received 28,297 25,652 28,810 25,726 26,083 26,571 24,796 35,507 YoY 8.5% 2.1% 16.9% -17.6% -7.8% 3.6% -13.9% 38.0% Brokerage 20,377 17,834 21,099 18,100 19,477 19,745 17,358 24,787 YoY 19.4% 7.6% 27.2% -20.7% -4.4% 10.7% -17.7% 36.9% Equity and ETF 4,731 4,258 4,813 4,556 4,248 4,212 3,504 5,479 Futures and options 15,646 13,575 16,286 13,544 15,229 15,533 13,852 19,290 Ot her commissions 7,920 7,818 7,711 7,626 6,606 6,826 7,438 10,720 YoY -12.1% -8.4% -4.3% -9.2% -16.6% -12.7% -3.5% 40.6% Net t rading income ------Financial income 18,680 20,901 20,710 22,973 24,667 25,010 22,672 19,387 YoY 29.3% 30.4% 26.0% 45.3% 32.1% 19.7% 9.5% -15.6% Sales revenue 178 90 1,963 313 625 1,797 441 929 Other operating revenue 3,007 3,000 2,716 2,849 2,565 2,206 2,066 2,361 Financial expenses 7,549 8,235 6,803 6,438 7,839 8,414 8,057 6,952 Cost of revenue 155 78 1,711 272 544 1,565 421 810 Net operating revenue 42,458 41,329 45,684 45,150 45,557 45,605 41,497 50,422 YoY 12.1% 10.1% 21.6% 1.9% 7.3% 10.3% -9.2% 11.7% SG&A expenses 40,345 37,942 39,150 38,326 39,789 40,149 38,854 45,788 YoY 6.6% 5.7% 5.1% 1.3% -1.4% 5.8% -0.8% 19.5% Operat ing profit equivalent 2,113 3,387 6,534 6,824 5,768 5,456 2,643 4,634 Yoy - 106.4% - 5.7% 173.0% 61.1% -59.6% -32.1% Other revenue 1 - - - 3 3 3 2 Other expenses 193 136 624 48 118 141 19 2,000 Pre-tax profit 1,921 3,251 5,910 6,776 5,653 5,318 2,627 2,636 YoY - 102.8% - 890.6% 194.3% 63.6% -55.5% -61.1% Profit 1,757 2,268 4,193 4,778 4,232 5,030 2,233 1,558 YoY - 19.6% -52.2% 481.3% 140.9% 121.8% -46.7% -67.4% Profit attributable to owners of the parent 1,757 2,268 4,193 4,778 4,232 5,030 2,233 1,558 YoY - 19.6% -52.2% 481.3% 140.9% 121.8% -46.7% -67.4% 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 “-.”

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US segment: SG&A breakdown

SG&A breakdown (cumulative) 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 79,938 118,792 164,580 YoY 6.6% 6.1% 5.8% 4.6% -1.4% 2.1% 1.2% 5.7% T rading-relat ed 14,849 27,846 41,495 55,317 13,458 27,033 39,784 56,137 YoY -4.4% 0.2% 3.0% 1.4% -9.4% -2.9% -4.1% 1.5% Commissions paid 7,929 14,165 21,952 28,253 7,444 14,976 21,777 31,169 Stock exchange and association fees 255 530 823 1,087 297 615 607 900 Telecom, transportation, and information 3,484 6,912 9,405 13,384 2,979 5,913 8,874 11,669 Advertising expenses 2,937 5,686 8,399 11,415 2,306 4,689 7,361 11,049 Other 244 554 917 1,179 432 840 1,166 1,352 Personnel 16,053 31,388 47,741 62,699 16,385 32,696 48,092 66,435 YoY 20.1% 14.1% 11.8% 7.4% 2.1% 4.2% 0.7% 6.0% Real estate-related 2,402 4,828 7,308 9,799 1,871 3,929 6,210 8,612 YoY 18.0% 10.5% 8.3% 7.2% -22.1% -18.6% -15.0% -12.1% Real estate 752 1,561 2,386 3,191 243 480 756 1,026 Furniture and fixtures 1,651 3,268 4,923 6,609 1,628 3,449 5,454 7,586 Office and supplies 50 91 147 199 53 122 206 274 YoY 0.0% -18.8% -31.0% -24.9% 6.0% 34.1% 40.1% 37.7% Outsourcing ------Supplies 50 91 147 199 53 122 206 274 Depreciat ion 4,601 9,301 14,079 18,916 5,543 11,318 17,178 23,062 YoY 2.6% 3.1% 3.3% 4.5% 20.5% 21.7% 22.0% 21.9% Taxes and dues 78 137 194 254 79 307 436 504 Other 2,312 4,696 6,474 8,581 2,400 4,533 6,884 9,554 SG&A breakdown (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 45,788 YoY 6.6% 5.7% 5.1% 1.3% -1.4% 5.8% -0.8% 19.5% T rading-relat ed 14,849 12,997 13,649 13,822 13,458 13,575 12,751 16,353 YoY -4.4% 6.0% 9.2% -3.1% -9.4% 4.4% -6.6% 18.3% Commissions paid 7,929 6,236 7,787 6,301 7,444 7,532 6,801 9,392 Stock exchange and association fees 255 275 293 264 297 318 -8 293 Telecom, transportation, and information 3,484 3,428 2,493 3,979 2,979 2,934 2,961 2,795 Advertising expenses 2,937 2,749 2,713 3,016 2,306 2,383 2,672 3,688 Others 244 310 363 262 432 408 326 186 Personnel 16,053 15,335 16,353 14,958 16,385 16,311 15,396 18,343 YoY 20.1% 8.5% 7.5% -4.7% 2.1% 6.4% -5.9% 22.6% Real estate-related 2,402 2,426 2,480 2,491 1,871 2,058 2,281 2,402 YoY 18.0% 3.9% 4.3% 4.1% -22.1% -15.2% -8.0% -3.6% Real estate 752 809 825 805 243 237 276 270 Furniture and fixtures 1,651 1,617 1,655 1,686 1,628 1,821 2,005 2,132 Office and supplies 50 41 56 52 53 69 84 68 YoY 0.0% -33.9% -44.6% 0.0% 6.0% 68.3% 50.0% 30.8% Outsourcing ------Supplies 50 41 56 52 53 69 84 68 Depreciat ion 4,601 4,700 4,778 4,837 5,543 5,775 5,860 5,884 YoY 2.6% 3.5% 3.9% 8.3% 20.5% 22.9% 22.6% 21.6% Taxes and dues 78 59 57 60 79 228 129 68 Other 2,312 2,384 1,778 2,107 2,400 2,133 2,351 2,670 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 63.0 126.5 189.5 251.5 Daily average revenue trades (DARTs) 77,880 73,661 79,092 78,989 79,778 83,469 82,333 96,760 YoY 15.9% 12.9% 22.4% 12.0% 2.4% 13.3% 4.1% 22.5% Number of trades ('000) 4,984 9,318 14,909 19,708 5,026 10,559 15,602 24,335 Brokerage commissions (USD'000) 20,377 38,211 59,310 77,410 19,477 39,222 56,580 81,367 YoY 19.4% 13.6% 18.1% 6.0% -4.4% 2.6% -4.6% 5.1% Commissions per trade (USD) 4.1 4.1 4.0 3.9 3.9 3.7 3.6 3.3 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 62.0 VIX 15.3 12.9 21.1 16.5 15.2 16.0 14.0 31.2 YoY 34.2% 17.6% 104.2% -5.1% -1.0% 24.1% -33.5% 89.6% Daily average revenue trades (DARTs) 77,880 69,341 90,173 78,670 79,778 87,131 80,052 140,855 YoY 15.9% 9.5% 42.4% -11.3% 2.4% 25.7% -11.2% 79.0% Number of trades ('000) 4,984 4,334 5,591 4,799 5,026 5,533 5,043 8,733 Brokerage commissions (USD'000) 20,377 17,834 21,099 18,100 19,477 19,745 17,358 24,787 YoY 19.4% 7.6% 27.2% -20.7% -4.4% 10.7% -17.7% 36.9% Commissions per trade (USD) 4.1 4.1 3.8 3.8 3.9 3.6 3.4 2.8 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.

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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 5,139 5,428 YoY 11.2% 11.1% 10.5% 8.7% 8.1% 11.3% 13.2% 17.2% Rakuten Securities - 2,858 - 3,205 - 3,377 - 3,757 YoY - 20.5% - 22.8% - 18.1% - 17.2% Monex, Inc. 1,780 1,793 1,807 1,818 1,825 1,833 1,842 1,856 YoY 4.1% 3.9% 3.7% 3.2% 2.6% 2.2% 1.9% 2.1% Mat sui Securit ies 1,147 1,157 1,170 1,184 1,196 1,204 1,213 1,238 YoY 3.9% 3.9% 4.3% 4.2% 4.2% 4.1% 3.7% 4.6% au kabu.com Securities 1,096 1,103 1,110 1,118 1,124 1,131 1,139 1,152 YoY 3.6% 3.2% 3.0% 2.8% 2.6% 2.6% 2.6% 3.0% 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 12,190 11,087 YoY 16.0% 16.0% -5.0% -0.1% -1.0% -3.1% 17.0% -2.9% Rakuten Securities 5,184 5,515 5,076 5,598 5,802 6,183 6,893 6,606 YoY 18.7% 20.3% 2.6% 11.4% 11.9% 12.1% 35.8% 18.0% Monex, Inc. 4,283 4,409 3,831 4,059 4,014 4,106 4,322 3,751 YoY 7.7% 7.6% -11.5% -4.0% -6.3% -6.9% 12.8% -7.6% Mat sui Securit ies 2,535 2,601 2,243 2,340 2,291 2,317 2,436 2,114 YoY 5.2% 6.1% -13.2% -7.3% -9.6% -10.9% 8.6% -9.7% au kabu.com Securities 2,365 2,396 2,106 2,205 2,229 2,218 2,365 2,029 YoY 5.5% 5.2% -12.7% -5.6% -5.8% -7.4% 12.3% -8.0% 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 63.1 76.4 YoY 3.7% -2.5% -18.8% -30.3% -21.3% -17.1% -13.7% 23.2% SBI Securities 25.9 24.4 26.7 22.2 20.0 19.8 21.9 30.5 YoY 8.0% 1.2% -15.8% -29.2% -22.7% -18.7% -18.1% 37.1% % of total retail investors trading value 35.9% 36.4% 36.5% 35.9% 35.3% 35.7% 34.6% 39.9% Rakuten Securities 12.7 12.6 14.2 13.0 12.4 13.1 14.3 19.5 YoY 13.7% 12.8% -2.0% -13.5% -2.8% 3.6% 0.1% 50.2% % of total retail investors trading value 17.6% 18.8% 19.5% 21.0% 21.8% 23.5% 22.6% 25.6% Monex, Inc. 3.8 3.5 3.8 3.1 2.9 2.9 3.4 4.4 YoY -0.5% -3.2% -17.9% -34.6% -24.1% -17.4% -11.0% 42.5% % of total retail investors trading value 5.3% 5.2% 5.2% 5.0% 5.1% 5.2% 5.4% 5.8% Mat sui Securit ies 7.9 6.8 7.3 6.5 6.0 5.7 6.0 7.5 YoY -7.9% -15.5% -25.1% -30.3% -23.7% -15.6% -17.6% 15.4% % of total retail investors trading value 10.9% 10.1% 9.9% 10.6% 10.6% 10.3% 9.5% 9.9% au kabu.com Securities 6.4 5.9 6.4 5.7 4.9 4.8 5.4 7.2 YoY 3.4% -3.4% -18.8% -26.9% -22.4% -17.2% -16.0% 25.3% % of total retail investors trading value 8.8% 8.7% 8.7% 9.2% 8.7% 8.7% 8.5% 9.4% 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 18,984 24,865 YoY -6.7% -9.5% -18.1% -31.3% -18.6% -13.6% -10.6% 44.1% SBI Securities 7,667 7,572 8,428 6,932 6,639 6,777 7,547 10,888 YoY -1.5% -3.1% -12.4% -25.5% -13.4% -10.5% -10.5% 57.1% Rakuten Securities 3,804 3,779 4,085 3,420 3,295 3,453 3,930 5,152 YoY -9.9% -10.2% -14.6% -25.9% -13.4% -8.6% -3.8% 50.6% Monex, Inc. 2,885 2,679 2,958 2,256 2,154 2,171 2,781 3,352 YoY -12.3% -19.4% -26.1% -37.8% -25.3% -19.0% -6.0% 48.6% Mat sui Securit ies 3,848 3,543 3,840 3,054 2,843 2,838 3,205 3,964 YoY -7.3% -11.4% -24.4% -39.1% -26.1% -19.9% -16.5% 29.8% au kabu.com Securities 1,850 1,722 1,930 1,588 1,401 1,441 1,521 1,509 YoY -9.6% -12.9% -21.1% -37.9% -24.3% -16.3% -21.2% -5.0% Source: Shared Research based on company data

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Note: Figures may differ from company materials due to differences in rounding methods.

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 3.5 3.6 YoY change -0.3 -0.1 0.1 0.2 0.4 0.3 0.3 0.5 Rakuten Securities 3.0 3.0 2.9 2.6 2.7 2.6 2.8 2.6 YoY change -0.8 -0.8 -0.4 -0.4 -0.3 -0.4 -0.1 0.0 Monex, Inc. 7.6 7.7 7.8 7.3 7.5 7.6 8.2 7.6 YoY change -1.0 -1.5 -0.9 -0.4 -0.1 -0.1 0.4 0.3 Mat sui Securit ies 4.9 5.2 5.3 4.7 4.7 5.0 5.4 5.3 YoY change 0.0 0.2 0.0 -0.7 -0.2 -0.3 0.1 0.6 au kabu.com Securities 2.9 2.9 3.0 2.8 2.8 3.0 2.8 2.1 YoY change -0.4 -0.3 -0.1 -0.5 -0.1 0.0 -0.2 -0.7 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 3,116 2,837 YoY 16.3% 3.5% -20.0% -19.5% -24.9% -16.8% -0.5% -17.9% SBI Securities 946 914 784 838 722 780 830 647 YoY 20.2% 7.2% -15.4% -16.3% -23.7% -14.7% 5.9% -22.8% % of total margin trading balance 23.2% 24.6% 25.0% 24.3% 23.6% 25.3% 26.6% 22.8% Rakuten Securities 456 436 373 405 372 410 452 336 YoY 23.5% 12.2% -13.7% -13.5% -18.6% -6.2% 21.3% -17.1% % of total margin trading balance 11.2% 11.8% 11.9% 11.7% 12.1% 13.3% 14.5% 11.8% Monex, Inc. 201 178 158 157 152 153 161 127 YoY 21.5% 9.1% -16.4% -23.5% -24.1% -14.4% 1.9% -19.2% % of total margin trading balance 4.9% 4.8% 5.0% 4.5% 5.0% 4.9% 5.2% 4.5% Mat sui Securit ies 315 284 223 233 223 229 231 192 YoY 13.3% 3.3% -29.2% -29.9% -29.2% -19.1% 3.5% -17.7% % of total margin trading balance 7.7% 7.6% 7.1% 6.7% 7.3% 7.4% 7.4% 6.8% au kabu.com Securities 263 301 243 299 223 270 241 230 YoY 9.9% -1.1% -10.7% -10.9% -15.5% -10.2% -0.9% -23.2% % of total margin trading balance 6.5% 8.1% 7.8% 8.7% 7.3% 8.7% 7.7% 8.1% 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 20,337 21,663 21,000 22,290 20,131 YoY 17.3% 3.0% -9.9% -22.9% -19.3% -15.8% -11.2% -1.0% SBI Securities 11,485 11,144 10,656 8,897 9,008 9,062 9,235 8,641 YoY 17.7% 2.7% -13.6% -24.3% -21.6% -18.7% -13.3% -2.9% Financial income / Margin trading balance 1.2% 1.2% 1.3% 1.1% 1.2% 1.2% 1.1% 1.2% Rakuten Securities 5,906 5,630 5,633 4,706 4,863 4,853 4,948 4,580 YoY 28.6% 5.3% -4.7% -20.5% -17.7% -13.8% -12.2% -2.7% Financial income / Margin trading balance 1.3% 1.3% 1.4% 1.2% 1.3% 1.2% 1.1% 1.2% Monex, Inc. 3,246 2,565 3,032 2,175 2,873 2,379 2,832 2,050 YoY 12.4% 7.2% 1.7% -13.7% -11.5% -7.3% -6.6% -5.7% Financial income / Margin trading balance 1.6% 1.4% 1.8% 1.4% 1.9% 1.6% 1.8% 1.4% Mat sui Securit ies 3,064 2,897 2,807 2,344 2,266 2,385 2,502 2,386 YoY 11.7% 0.1% -12.2% -26.9% -26.0% -17.7% -10.9% 1.8% Financial income / Margin trading balance 0.9% 1.0% 1.1% 1.0% 1.0% 1.1% 1.1% 1.1% au kabu.com Securities 3,141 2,706 2,979 2,215 2,653 2,321 2,773 2,474 YoY 8.4% -0.5% -13.3% -25.4% -15.5% -14.2% -6.9% 11.7% Financial income / Margin trading balance 1.0% 1.0% 1.1% 0.8% 1.0% 0.9% 1.1% 1.1% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

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Quarterly earnings trends for top five online brokerages

Q4 FY03/20 au kabu.com SBI Securities Rakuten Securities Monex, Inc. Matsui Securities Quarterly (JPYmn) Securities Operating revenue 36,707 17,262 7,441 6,790 4,829 Net operating revenue 34,386 16,737 6,913 6,440 4,184 Commissions received 15,118 6,584 3,859 4,116 2,004 % of net operating revenue 44.0% 39.3% 55.8% 63.9% 47.9% Brokerage 10,888 5,152 3,352 3,964 1,509 % of net operating revenue 31.7% 30.8% 48.5% 61.6% 36.1% Underwriting and distribution 186 8 26 1 - % of net operating revenue 0.5% 0.0% 0.4% 0.0% 0.0% Subscription and distribution 419 227 2 - 8 % of net operating revenue 1.2% 1.4% 0.0% 0.0% 0.2% Other commissions 3,624 1,195 479 151 487 % of net operating revenue 10.5% 7.1% 6.9% 2.3% 11.6% Net trading income 12,931 5,538 1,506 288 284 % of net operating revenue 37.6% 33.1% 21.8% 4.5% 6.8% Net financial income 7,064 4,055 1,521 2,036 1,869 % of net operating revenue 20.5% 24.2% 22.0% 31.6% 44.7% Financial income 8,641 4,580 2,050 2,386 2,474 Financial expenses 1,577 525 529 350 605 SG&A expenses 19,775 12,844 6,088 3,780 3,491 % of net operating revenue 57.5% 76.7% 88.1% 58.7% 83.4% Operating profit 14,611 3,893 825 2,660 694 % of net operating revenue 42.5% 23.3% 11.9% 41.3% 16.6% 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 Q1 FY12/20 results.

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Full-year results for FY03/20

Operating revenue: JPY53.2bn (+2.0% YoY) ▷ Net operating revenue: JPY48.0bn (+1.2% YoY) ▷ Operating profit equivalent: JPY5.2bn (+89.0% YoY) ▷ Pre-tax profit: JPY4.1bn (+130.8% YoY) ▷ Profit attributable to owners of the parent: JPY3.0bn (+155.0% YoY) ▷

Full-year consolidated operating revenue of JPY53.2bn was up 2.0% YoY. Commission income of JPY25.4bn was down 1.4% YoY, reflecting declines in brokerage commissions and other fees and commissions at the Japan segment with this partially offset by rising brokerage commissions at the US segment. Trading income of JPY8.6bn was up 32.3% YoY on increases in trading income at the Japan segment and the Crypto Asset segment. Financial income of JPY18.6bn was down 3.4% YoY, the decline due in large part to falling financial income at the Japan segment.

On the expense front, SG&A expenses of JPY42.8bn were down 4.2% YoY, reflecting reduced systems-related expenses at the Japan segment and lower personnel and administrative spending at the Crypto Asset segment.

On the earnings front, operating profit equivalent was up YoY thanks to the turnaround at the Crypto Asset segment, whose move back into the black offset falling profits at both the Japan and US segments.

At the individual segment level, we find operating revenue at the Japan segment finishing the year down due to the decline in equity trading value by retail investors. Aided by lower depreciation, the Japan segment cut SG&A expenses but not by enough to offset the drop in operating revenue, leaving operating profit equivalent down for the year. Pre-tax segment profit finished sharply higher, though, thanks to smaller losses reported under other revenues and expenses.

At the US segment, operating revenue rose on the back of increases in both commission income and net financial income, but increases in SG&A expenses left segment earnings down for the year.

At the Crypto Asset segment, operating revenue and earnings both finished the year higher as revenues from its cryptocurrency exchange operations rose following the completion of Coincheck’s registration as a cryptocurrency exchange operator in January 2019, and earnings got an additional boost from cuts in expenses.

Full-year results at the individual segment level are discussed in further detail below.

Japan segment Overview of full-year results for FY03/20 For FY03/20, the Japan segment reported full-year operating revenue of JPY26.4bn (-4.8% YoY). Commission income of JPY12.6bn was down 5.2% YoY and trading income of JPY5.0bn was up 10.9% YoY. Financial income of JPY8.7bn was down 11.8% YoY while financial expenses rose 3.1% YoY to JPY2.1bn, leaving net financial income down 15.6% YoY, at JPY6.6bn.

Net operating revenue (operating revenue after deducting financial expenses and cost of revenue) of JPY24.3bn was down 5.4% YoY. Operating profit equivalent of JPY2.7bn was down 2.1% YoY, and pre-tax segment profit of JPY2.3bn was up 80.6% YoY.

Commission income At the Japan segment, commission income of JPY12.6bn was down 5.2% YoY, the drop coming primarily from falling commissions from stock and ETF trading, which at JPY9.9bn was down 4.0% YoY amid slower trading by retail investors across the market as a whole. The drop in overall trading notwithstanding, Monex, Inc. saw its market share of trading by retail investors increase during the year and also saw an increase in its average commission rate on stock trades.

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On the Tokyo and Nagoya stock exchanges, average daily equity trading by retail investors of JPY1.0tn during FY03/20 was down 6.8% YoY. With an average daily stock trading value by retail investors of JPY56.1bn (-3.2% YoY), Monex, Inc. saw its market share on this metric rise 0.2pp YoY to 5.4%. The decline in stock trading by retail investors at Monex, Inc. reflected the combination of a 10.0% YoY decline in trading in cash equities and a 0.3% YoY increase in trading on margin. As a percent of all stock trading by individual investors at Monex, Inc., margin trading accounted for 56.7% in FY03/20, an increase of 3.7pp versus FY03/19 (Shared Research estimate based on company figures).

During the year, Monex, Inc. handled stocks and ETF trades worth a total of JPY13.5tn. Down 4.4% versus FY03/19, the decline stemmed in part from a decline in the number of trading days from 244 in FY03/19 to 241 in FY03/20.

For the year, Monex, Inc. reported an average brokerage commission rate on stock trades of 0.075%. An increase of 0.001pp over 0.074% in FY03/19, this reflected a one-time reversal of JPY252mn in provisioning for Monex Points (reward points) booked in Q3 FY03/20. Excluding this one-time boon, the average commission rate would have declined 0.001pp to 0.073%, the decline resulting from the rising proportion of stock trades accounted for by margin trades (which carry lower commission rates).

In other areas, in December 2019, Monex, Inc. initiated a cash-back rebate program that effectively eliminated sales commissions on mutual fund sales, and also made margin trading in ETFs and REITs commission-free. The rebates of sales commissions on mutual fund sales reduced income from subscription/distribution commissions by JPY160mn while the move to commission-free margin trades for ETFs and REITs reduced brokerage commissions from stock and ETF trading by JPY100mn.

Trading income Net trading income of JPY5.0bn was up 10.9% YoY. According to the Financial Futures Association of Japan, the trading value for OTC forex margin trades during the 12-month period from April 2019 through March 2020 rose 14.1% YoY to JPY4,266tn. In contrast, Monex, Inc. saw forex trading jump 80.6% YoY to JPY71.7tn while revenue from forex trades rose 5.2% YoY to JPY3.8bn. The sharp jump in forex trading at Monex, Inc. reflected the move by the company 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, subject to conditions) in November 2018 followed in October 2019 by a further tightening of the bid-ask spread on USD/JPY pair trades to JPY0.002 (fixed in principle, subject to conditions). While the move to tighter bid-ask spreads spurred a sharp jump in forex trading, the tighter bid-ask spreads left the increase in revenue from the forex trades lagging far behind the increase in the value of trades handled.

Financial income and net financial income Financial income of JPY8.7bn was down 11.8% YoY, reflecting a decline in the average balance of margin trading accounts and an accompanying decline in income from margin trading. In contrast to margin trades outstanding on the Tokyo and Nagoya stock exchanges, which at JPY2.8tn at the end of FY03/20 was down 17.9% YoY, the fiscal year-end balance of margin trades outstanding at Monex, Inc. stood at JPY126.8bn, down 19.2% versus the end of FY03/19. Based on company data, Shared Research estimates that the average month-end of margin trades outstanding at Monex, Inc. during FY03/20 was JPY154.3bn, down 13.9% versus FY03/19. With financial expenses rising 3.0% YoY to JPY2.1bn, net financial income of JPY6.6bn was down 15.6% YoY.

SG&A expenses SG&A expenses of JPY21.7bn were down 5.8% YoY. Trading-related expenses of JPY5.1bn were down 0.5% YoY, personnel expenses of JPY4.5bn were up 11.5% YoY, and systems-related expenses of JPY10.7bn were down 14.0% YoY. The decline in trading-related expenses reflected a decline in advertising and promotional spending, which at JPY1.1bn was down 8.0% YoY.

The largest component of SG&A spending at Monex, Inc. is IT systems-related expenses, which includes real estate expenses, administrative/office expenses, and depreciation. At JPY10.7bn in FY03/20, systems-related expenses were down 14.0% versus FY03/19, the double-digit decline reflecting the dropout of a JPY1.8bn impairment loss booked in Q4 FY03/19 on fixed assets associated with the TradeStation trading platform for Japanese equities and changes in the depreciation period used for certain assets, which brought depreciation charges for the year down to JPY5.0bn, a decline of 17.8% versus FY03/19.

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Other income/expenses (net) Under other income/expenses, the Japan segment reported a net loss of JPY420mn versus a loss of JPY1.6bn in FY03/19. The losses include JPY344mn in valuation losses on investment securities and a JPY207mn impairment loss booked on fixed assets associated with the TradeStation trading platform for Japanese equities. This follows on the heels of a JPY1.8bn impairment loss booked in connection with the TradeStation trading platform for Japanese equities in FY03/19.

Customer trends As of the end of March 2020, Monex, Inc. had a total of 1,856,376 customer accounts (+2.1% YoY) and total customer assets under custody of JPY3.8tn (-7.6% YoY).

Other developments at the Japan segment Aiming to transform its business model from a traditional broker service model (i.e., collecting commissions for each trade) to an asset management service model (i.e., receiving compensation for asset building and asset management services), Monex, Inc. established Japan Catalyst, Inc. and narrowed its bid-ask spread on forex trading services.

Industry peer announces plans for 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 stocks, ETFs, and options trading on US and Canadian exchanges. Competitors have followed suit with their commission-free trading packages.

SBI Holdings (TSE1: 8473), the parent company of SBI Securities, the largest online broker in Japan, announced at its 1H FY03/20 briefing held in October 2019 that it aims to introduce commission-free trading for all trades under a three-year plan, starting with proprietary trading system (PTS) overnight trades. (However, the presentation material for Q3 FY03/20 results did not refer to a three-year plan, but only indicated that the company would promote commission-free trading based on progress made by new and existing brokerages in implementing commission-free trading.) To realize commission-free trading, SBI Holdings said that it plans to expand its revenue base outside of commissions, boost earnings from the increased trading value and liquidity owing to commission-free trading, and further reduce costs. As for expanding its revenue base, SBI Holdings looks to strengthen the profitability of its underwriting, M&A, forex, crypto asset-related, and other services. To boost earnings from the increased trading value and liquidity, it expects the rise in PTS trading, improved matching of trades in off-auction markets (including so- called “dark pools”), and a larger balance of margin trading accounts to boost interest rate income. Also, it aims to push for cost reductions by adopting AI technology and robotic process automation (RPA) tools.

Shared Research understands the majority of equity-related revenue at Japanese online brokers come from brokerage commissions and net financial income on margin trades. This stands in contrast with online brokers in the US who have diverse sources of revenue, such as financial income from investing assets under custody and payment for order flow. Accordingly, US brokers can offset the impact of commission-free trading with benefits accompanying an increase in the number of accounts.

Monex, Inc. is highly dependent on stock trading commissions and margin trading income. Brokerage commissions accounted for 41.4% of net operating revenue in FY03/19, second only to Matsui Securities out of the five major online brokers in Japan. Monex, Inc. will likely see a drop in revenue and profit should moves by industry peers to lower commission rates over the medium term prompt it to follow suit.

Establishment of Japan Catalyst, Inc. In January 2020, Monex, Inc. established Japan Catalyst, Inc. (JCI), an investment advisory firm that pursues investment returns through proposals to and engagement with listed Japanese firms.

JCI’s unique qualities include the following. First, it is funded by retail investors in Japan. Second, it provides advice from investment managers based in Japan. Third, it facilitates a holistic engagement that consists of proposals to and dialogue with target companies, awareness-building activities for retail investors, and proposals to and dialogue with the government, stock exchanges, business community, and media.

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Plans call for establishing the Monex Activist Fund as a mutual fund in June 2020. Nicknamed the “Future of Japan” fund, the mutual fund will be managed by Monex Asset Management and will engage in productive dialogue with the listed companies with which it has invested. JCI will provide investment advisory services for the mother fund holding the companies in which the Monex Activist Fund has invested.

At FX PLUS service, narrows bid-ask spread on USD-JPY pair trades to JPY0.002 On October 17, 2019, Monex, Inc. narrowed the bid-ask spread for the USD/JPY currency pair on FX PLUS (its foreign exchange margin trading service) to JPY0.002 from JPY0.003. Although it had already tightened the spread for all currency pairs in November 2018, Monex, Inc. further lowered the spread for the USD/JPY currency pair.

US segment Overview of full-year results for FY03/20 For FY03/20, the US segment reported operating revenue of JPY23.6bn (+3.7% YoY), with commission income coming in at JPY12.3bn (+2.1% YoY), financial income at JPY10.0bn (+8.1% YoY), and net financial income at JPY6.6bn (+9.4% YoY).

Net operating revenue (operating revenue after deducting financial expenses and cost of revenue) of JPY19.9bn was up 2.8% YoY, operating profit equivalent of JPY2.0bn was down 3.7% YoY, and pre-tax segment profit of JPY1.8bn was down 10.8% 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 of JPY12.3bn was up 2.1% YoY, the increase driven by rising brokerage commissions on futures and options trading. The rise in financial income reflected growth in customer assets under custody and the accompanying increase in interest income. The average yen/dollar exchange rate for the year reflected a 1.9% appreciation of the yen versus the dollar compared with FY03/19.

On the earnings front, net operating revenue was up 2.8% YoY but the 3.6% increase in SG&A expenses left earnings down at the operating profit level and below.

USD basis On a US dollar basis, the US segment reported full-year operating revenue of USD217.7mn (+5.7% YoY), with commission income of USD113.0mn up 4.1% YoY and financial income of USD91.7mn up 10.2% YoY, and net financial income of JPY60.5bn up 11.5% YoY.

Net operating revenue of USD183.1mn was down 4.8% YoY, operating profit equivalent of USD18.5mn down 1.9% YoY, and pre-tax segment profit of USD16.2mn down 9.1% YoY.

Commission income Commission income of USD113.0mn was up 4.1% YoY; in yen terms, commission income of JPY12.3bn was up 2.1% YoY.

Brokerage commissions of USD81.4mn was up 5.1% YoY; in yen terms, brokerage commissions of JPY8.8bn was up 3.1% YoY. Of this, stock/ETF trading generated commission income of USD17.4mn (-5.0% YoY) or JPY1.9bn (-6.8% YoY), and futures/options trading generated commission income of USD63.9mn (+8.2% YoY) or JPY6.9bn (+6.1% YoY). While the US segment benefited from the increase in the average number of commissionable contracts or securities trades on trading days (i.e., DARTs) that accompanied the rise in market volatility (as indicated by the VIX volatility index) and an increasing number of active accounts, some of these gains were offset by the estimated USD4.2mn reduction in commission income stemming from the introduction of TradeStation’s new TS GO and TS SELECT services offering commission-free trading.

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As of the end of March 2020, the US segment reported a total of 102,012 active accounts (+12.6% YoY). For the year the VIX volatility index averaged 19.1 (+16.2% YoY). The average number of commissionable contracts or securities trades at the US segment on trading days rose 22.5% YoY to 96,760, of which stocks trades accounted for 33,041 (+25.6% YoY), option trades 11,682 (+16.8% YoY), and futures trades 52,037 (+21.9% YoY) (Shared Research estimates based on company data).

Other fee and commission income came to USD31.6mn (+1.7% YoY) or JPY3.4bn (-0.3% YoY).

Financial income Financial income of USD91.7mn was up 10.2% YoY; in yen terms, financial income of JPY10.0bn was up 8.1% YoY. The gains reflected the increase in the average customer assets under custody and the resulting rise in interest income received.

Financial expenses of USD31.3mn (+7.7% YoY), or JPY3.4bn (+5.7% YoY), reflected increases in stock lending fees. Net financial income came to USD60.5mn (+11.5% YoY) or JPY6.6bn (+9.4% YoY), with net income from customer assets (cash) under custody coming in around USD50mn versus USD45mn in FY03/19 thanks in large part to the rise in short-term interest rates.

As of the end of March 2020, the US segment reported total customer assets under custody of USD5.4bn (-2.1% YoY). Even though the company managed to increase the number of active accounts, this was unable to offset the decline in customer assets under custody resulting from the drop in stock prices.

Out of the roughly JPY2.0bn in cash included in customer assets under custody, roughly USD1.0bn had been covered by floating-for-fixed interest rate swaps to hedge the interest rate risk. Those swaps were allowed to expire in November 2018, though, and starting in December 2018 the company was able to benefit from the rise in floating interest rates, which increased its net financial income by roughly one million dollars a month (versus its partially hedged position). During the course of 2018, the Fed steadily raised its federal funds rate target from 1.50% in January to 1.75% in March, to 2.0% in June, to 2.25% in September, then to 2.50% in December. This was followed in 2019 by a reduction in the Fed’s target rate to 2.25% in July, then to 1.75% in October. By March 2020, the Fed’s target rate had been lowered to 0.25%.

SG&A expenses SG&A expenses totaled USD164.6mn (+5.7% YoY) or JPY17.9bn (+3.6% YoY), the rise reflecting increases in depreciation, trading-related, and personnel expenses. Trading-related expenses totaled USD56.1mn (+1.5% YoY) or JPY6.1bn (-0.5% YoY), personnel expenses totaled USD66.4mn (+6.0% YoY) or JPY7.2bn (+3.9% YoY), and systems-related expenses (including real estate-related expenses, administrative expenses, and depreciation) of USD31.9mn (+10.5% YoY) or JPY3.5bn (+8.4% YoY).

The increase in trading-related expenses reflected the increase in trading volume and the accompanying rise in commissions payable. The startup of new services such as TradeStation Crypto and YouCanTrade, pushed up not only personnel expenses but depreciation as well. Personnel expenses were also pushed up by employee bonus payments that were linked to earnings; depreciation charges were further increased by the adoption of IFRS 16 (governing lease accounting).

Customer trends As of the end of March 2020, the number of active accounts at TradeStation Securities, Inc. was 102,012 (+12.6% YoY). Total customer assets under custody of USD5.4bn was down 2.1% YoY.

Other developments at the US segment The US segment took new measures to increase revenue, such as the introduction of an educational platform, aiming to diversify its revenue source and drive medium-term revenue growth while offsetting the negative impact of commission-free trading plans on revenue.

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Commission-free trading plans by peers and introduction of TS GO and TS SELECT 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 TS GO 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 TS GO 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. Although TS GO eliminates trading commissions for options, it still charges USD0.50 per contract.

In November 2019, TradeStation introduced a new pricing plan called TS SELECT. Under this plan, users can trade stocks, ETFs, and options via mobile and online platforms free of commissions. TradeStation Desktop, which comes with various trading tools, can also be used for a competitive price. Options trades are commission-free but cost USD0.60 per contract.

TS GO and TS SELECT pricing plans TS GO TS SELECT Previous price Stocks, ETFs 0 0 USD5.00/trade Options USD0.50/contract USD0.60/contract USD5.00/trade + USD0.50/contract Futures USD0.85/contract/side USD1.50/contract/side USD1.50/contract/side Futures options USD1.50/contract/side USD1.50/contract/side USD1.50/contract/side

Platform usage fees for TS GO and TS SELECT TS GO TS SELECT Previous price Online Free Free Free Mobile Free Free Free TradeStation Desktop Additional charges apply Free Free (USD149.95/month if less than minimum trading value) Minimum balance 0 USD2,000 0 Note: TS GO rates only apply to trades placed via web and mobile platforms. TS GO users must pay an additional USD10.00 per stock and options trade when placing orders via the TradeStation Desktop platform, and an additional charge of USD1.40 per contract for futures trades. In contrast, TS SELECT users can place orders via the TradeStation Desktop platform without additional charges.

In 2H FY03/20, the US segment reported brokerage commission income of USD42.1bn (+USD2.9mn YoY), with ETF/stock trading generating commission income of USD9.0mn (-USD0.4mn YoY) and futures/options trading generating commission income of USD33.1mn (+USD3.3mn YoY). The company estimates that the launch of its new TS GO and TS SELECT services offering commission-free trading reduced commission income by USD4.2mn in FY03/20. The company said that the impact on commission income was blunted to a large extent by the additional step required for users to switch from their existing plan to TS GO or TS SELECT. The company also noted that commissions would still be charge on a per-contract basis for options and futures trades, and that reduction in brokerage commission income would also be partially offset by an increases in revenue from payment for order flow and higher fees charged to non-active accounts for the use of advanced trading tools.

Launch of YouCanTrade In January 2020, TradeStation Group, Inc. launched YouCanTrade, an online investment education media service and trading community. YouCanTrade is offered exclusively by You Can Trade, Inc., a new subsidiary of the TradeStation Group.

YouCanTrade delivers social community services to traders, who can watch educational demos of investing and trading in an actual trading room and learn from or teach traders of various level of experience. YouCanTrade also functions as a trading community where traders can share with other traders about the approaches and techniques they have acquired and also learn from veteran traders designated as “coaches.”

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Coach: On YouCanTrade, a coach is someone who runs their trading channel where they can share their educational demos live to channel viewers. Note that coaches are not affiliated with YouCanTrade, an investment advisory firm, or securities company. Their aim is not to solicit or sell any particular securities, or give advice and recommendations to viewers.

Began offering services on TradeStation Crypto TradeStation Crypto, Inc., a subsidiary of TradeStation Group, Inc., began offering services to the public on its cryptocurrency exchange platform TradeStation Crypto in November 2019.

TradeStation Crypto is the first service ever to apply the traditional online brokerage model to cryptocurrency trades. Although other exchanges on the market tend to be fragmented and self-contained, TradeStation Crypto aggregates the liquidity pools of multiple markets by integrating their data feeds. The platform claims to offer superior trade execution to customers by using an automated order routing system.

Asia-Pacific segment Overview of full-year results for FY03/20 For FY03/20, the Asia-Pacific segment reported full-year operating revenue of JPY887mn (+7.0% YoY), with commission income coming in at JPY454mn (+11.8% YoY) and financial income at JPY280mn (-7.0% YoY).

Net operating revenue (operating revenue after deducting financial expenses and cost of revenue) of JPY634mn was down 21.5% YoY; the operating loss equivalent of JPY263mn compares with a year-earlier loss of JPY75mn, and the pre-tax segment loss of JPY230mn compares with a year-earlier loss of JPY48mn.

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

Operating revenue At Monex Boom Securities (H.K.), commission income of JPY454mn was up 11.9% YoY, the gains driven mainly by the increase in brokerage commissions received as rising market volatility led to increased trading by account holders, especially in US stocks.

Financial income Financial income of JPY280mn was down 7.0% YoY. Financial expenses of JPY252mn were up from JPY22mn in FY03/19, reflecting an outlay of JPY229mn in connection with credit default swaps on loans outstanding. This left the segment with net financial loss of JPY28mn versus net financial income of JPY279mn in FY03/19.

SG&A expenses SG&A expenses of JPY898mn were up 1.7% YoY. The decline in advertising expenses at Monex Securities Australia was not enough to offset the increase in trading-related expenses that accompanied the rise in customer trading at Monex Boom Securities.

Other income/expenses The Asia-Pacific segment also reported JPY48mn (+56.7% YoY) in earnings from equity-method subsidiaries. This reflected its share of the profit booked by a joint-venture company in mainland China.

Crypto Asset segment Overview of full-year results for FY03/20 For FY03/20, the Crypto Asset segment reported full-year operating revenue of JPY3.8bn (+80.2% YoY), with commission income coming in at JPY288mn (+54.8% YoY) and trading income at JPY3.5bn (+82.9% YoY). The segment reported a pre-tax profit of JPY293mn versus a year-earlier 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 forbidden to open any new user accounts and was restricted to only offering a few services,

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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 began handling Monacoin in June 2019, followed by StellarLumens (XLM) in November and Quantum (QTUM) in March 2020, bringing the number of different cryptocurrencies handled to twelve.

The sharp jump in operating revenue over FY03/19 reflected a combination of increasing trading on the cryptocurrency markets as a whole, a rise in the number of registered users at Coincheck, the addition of new cryptocurrencies to Coincheck’s exchange, and increases in trading profits from trading on the exchange. Earnings were further bolstered by a decline in SG&A expenses, leaving the segment in the black for the full year versus a loss in FY03/19.

Commission and trading income Commission income includes withdrawal and remittance fees and commissions earned from transactions handled on behalf of clients on the cryptocurrency exchange. Trading income is derived from proprietary trading on the cryptocurrency exchange. The rise in trading income during the year reflects the success of the company’s year-round marketing efforts to get clients trade in different types of cryptocurrencies along with gains during a short period when the cryptocurrency markets were extremely active.

User accounts As of the end of March 2020, Coincheck reported a total of some 2.03mn registered users (versus 1.98mn at the end of March 2019), of which roughly 940,000 were verified accounts held by owners whose identification had been confirmed (versus roughly 900,000 at the end of March 2019). As of the end of March 2020, the Crypto Asset segment reported total customer assets under custody of JPY69.0bn (+3.7% YoY).

SG&A expenses SG&A expenses of JPY3.5bn were down 26.5% YoY, with trading-related expenses of JPY781mn up 10.2% YoY, personnel expenses of JPY1.3bn down 25.5% YoY, and systems-related expenses (including real estate-related expenses, administrative expenses, and depreciation) of JPY986mn down 31.6% YoY.

Reductions in its employee headcount (from 168 at the end of March 2019 to 125 at the end of March 2020) coupled with the consolidation of offices helped bring down spending on both personnel and systems. The decline in systems-related spending was further aided by the drop in systems development spending following the completion of Coincheck’s official registration as a cryptocurrency exchange operator (in compliance with all relevant laws and regulations governing financial settlements) in January 2019. The completion of its registration as a cryptocurrency exchange operator also allowed Coincheck to cut back spending on personnel, as during the registration process it had had to hire extra outside staff to handle incoming calls but with the completion of its registration as a cryptocurrency exchange operator this extra staff could be dismissed, and offices were consolidated as well.

Pre-tax profit For FY03/20, the Crypto Asset segment reported a pre-tax profit of JPY293mn versus a loss of JPY1.7bn in FY03/19.

Investment segment For FY03/20, the Investment segment reported full-year operating revenue of JPY149mn (-64.0% YoY), with financial income coming in at JPY149mn (-64.0% YoY). Pre-tax segment profit of JPY94mn was down 75.5% YoY.

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

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Results for Q4 FY03/20 (January–March 2020)

Operating revenue: JPY14.7bn (+21.5% YoY, +16.8% QoQ) ▷ Net operating revenue: JPY13.6bn (+23.1% YoY, +21.5% QoQ) ▷ Operating profit equivalent: JPY2.1bn (versus loss of JPY273 in Q4 FY03/19, +138.1% QoQ) ▷ Pre-tax profit: JPY1.1bn (versus loss of JPY1.4bn in Q4 FY03/19, +22.8% QoQ) ▷ Profit attributable to owners of the parent: JPY759mn (versus loss of JPY1.5bn in Q4 FY12/19, +32.5% QoQ) ▷

For Q4 FY03/20, the company reported consolidated operating revenue of JPY14.7bn (+21.5% YoY, +16.8% QoQ). Commission income of JPY7.8bn was up 36.0% YoY and 28.1% QoQ, driven mainly by increases in commissions at the Japan segment and the US segment. Trading income of JPY2.6bn was up 84.7% YoY and 64.7% QoQ, reflecting gains at the Japan segment and the Crypto Asset segment. Financial income of JPY4.0bn was down 14.7% YoY and 13.9% QoQ, hurt by falling financial income at the Japan and US segment.

On the expense front, SG&A expenses of JPY11.5bn were up 1.4% YoY and 11.5% QoQ. On a YoY comparison basis, the increase in SG&A expenses reflected a combination of higher trading-related and personnel expenses at the US segment and lower SG&A expenses at the Crypto Asset segment. On a QoQ comparison basis, the increase in SG&A expenses was driven by an increase in trading-related at the Japan and US segment, as well as an increase in personnel expenses at the US segment.

Q4 earnings finished up YoY and QoQ at all levels. At the Japan segment, Q4 revenues and earnings were up both YoY and QoQ, driven by a rise in equity trading value and the accompanying increase in commission income, and increases in trading income. At the US segment, Q4 revenues were likewise up YoY and QoQ, thanks to an increase in commission income; however, increases in SG&A expenses left earnings at the US segment down YoY but still up QoQ. At the Crypto Asset segment, Q4 revenues and earnings were up both YoY and QoQ, driven by the rising in cryptocurrency trading by customers on its cryptocurrency exchange and an accompanying increase in trading income, and a YoY decline in expenses.

Japan segment Overview of results for Q4 FY03/20 The Japan segment reported Q4 operating revenue of JPY7.3bn (+19.3% YoY, +6.8% QoQ), with commission income coming in at JPY3.8bn (+35.6% YoY, +15.2% QoQ), trading income at JPY1.5bn (+30.1% YoY, +26.1% QoQ), and financial income at JPY1.9bn (-8.5% YoY, -15.7% QoQ). With financial expenses of JPY446mn (flat YoY, -12.7% QoQ), net financial income came in at JPY1.5bn (-10.9% YoY, -16.5% QoQ).

Net operating revenue of JPY6.8bn in Q4 was up 20.8% YoY and 8.4% QoQ, operating profit equivalent of JPY958mn compares with a year-earlier loss of JPY51mn and was up 3.3% QoQ, and pre-tax segment profit of JPY463mn compares with a year-earlier loss of JPY1,687mn but was down 48.6% QoQ.

On a YoY comparison basis, segment revenues and earnings were both up, bolstered by the rise in commission income that accompanied the increase in trading by retail investors during the quarter and the increase in trading income. On a quarter comparison basis, the rise in earnings at the operating profit equivalent level was capped at modest 3.3% due to a rise in SG&A expenses.

Commission income At the Japan segment, Q4 commission income of JPY3.8bn was up 35.6% YoY and 15.2% QoQ, with gains coming mainly from a rise in brokerage commissions on stock and ETF trading, which at JPY3.1bn were up 46.2% YoY and 17.8% QoQ. Compared with the sharp jump in equity trading value during Q4, the rise in commission income was muted on a QoQ comparison basis due to the presence of a one-time reversal of provisioning for Monex Points (customer reward points) made in Q3.

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In addition to an increase in trading by retail investors across the market as a whole during Q4, trading income at the company’s Japan segment also benefited from a YoY growth in Monex, Inc.’s market share of trading by retail investors.

During the January-March 2020 quarter, the Tokyo and Nagoya stock exchanges saw average daily equity trading by retail investors of JPY1.3tn (+23.2% YoY, +29.3% QoQ). Monex, Inc. saw average daily equity trading by retail investors of JPY76.0bn (+42.6% YoY, +39.1% QoQ) and its market share of trading by retail investors rise to 5.8% (+0.8pp YoY, +0.4pp QoQ). Customer trading in cash equities in Q4 was up 46.0% YoY and 29.1% QoQ while customer trading on margin was down 39.8% YoY and up 30.8% QoQ. Based on company data, Shared Research estimates that margin trading during Q4 accounted for 55.8% of all equity trades handled by Monex, Inc., representing a decline of 1.1pp YoY and a modest increase of 0.3pp QoQ.

The January-March 2020 quarter had a total of 58 trading days, unchanged versus 58 in the same quarter last year but down versus 62 trading days the preceding quarter (October-December 2019). During the quarter Monex, Inc. handled a total of JPY4.4tn in equity trades, an increase of 42.5% over the same quarter last year and an increase of 30.1% versus the preceding quarter.

The average commission rate on stock trades was 0.072% (+0.001pp YoY, -0.001pp QoQ).

Trading income Net trading income of JPY1.5bn in Q4 was up 30.1% YoY and 26.1% QoQ. Statistics from the Financial Futures Association of Japan show the trading value for OTC forex margin trades during the January March 2020 quarter hitting JPY1,741tn, – representing an increase of 90.4% YoY and 11.5% QoQ. Monex, Inc. reported total forex trading value in Q4 of JPY28.3tn, representing an increase of 94.3% YoY and 99.9% QoQ, with this pushing up its forex trading income to JPY1.2bn (+25.7% YoY, +40.4% QoQ). The rise in forex trading value was also attributed to the company’s move in November 2018 to tighten its bid-ask spread on all currency pairs and narrow the spread on the USD/JPY pair to JPY0.003 (fixed in principle, subject to conditions) followed by a further tightening of the bid-ask spread to JPY0.002 in October 2019. While the move to tighter bid-ask spreads spurred a sharp jump in forex trading, the tighter bid-ask spreads left the resulting increase in revenue from forex trading lagging well behind the increase in the value of trades handled.

Financial income and net financial income Q4 financial income of JPY1.9bn was down 8.5% YoY and 15.7% QoQ, reflecting decreases in the average balance in margin accounts and income from margin trading. At Monex, Inc., the balance of margin trades in customer accounts outstanding as of the end of Q4 was JPY126.8bn (-19.2% YoY, -21.1% QoQ) and the average month-end balance in margin accounts was JPY151.8bn (-3.2% YoY, -3.8% QoQ) (Shared Research estimate based on company data). With financial expenses of JPY446mn (flat YoY, -12.7% QoQ), net financial income of JPY1.5bn was down 10.9% YoY and 16.5% QoQ.

SG&A expenses Q4 SG&A expenses of JPY5.9bn were up 2.9% YoY and 9.3% QoQ. Trading-related expenses of JPY1.5bn were up 18.3% YoY and 19.3% QoQ, personnel expenses of JPY1.2bn were up 22.8% YoY and 5.7% QoQ, and systems-related expenses of JPY2.8bn were down 9.7% YoY and up 5.7% QoQ.

The rise in trading-related expenses reflected the increase in trading volume and the accompany increase in commissions paid, which at JPY457mn was up 34.4% YoY and 34.8% QoQ. New account opening also led to increases in advertising and promotional spending, which as JPY358mn was up 21.8% YoY and 30.7% QoQ.

The largest component of SG&A spending at the Japan segment is systems-related expenses, which includes related real estate expenses as well as administrative expenses and depreciation. The 9.7% YoY decline in systems-related expenses in Q4 reflected the dropout of a JPY1.8bn impairment loss booked in the same quarter the previous year on fixed assets associated with the TradeStation trading platform for Japanese equities, and changes in the depreciation period used for certain assets, which brought depreciation charges for the quarter down to JPY1.3bn, a decline of 13.5% versus the same quarter in FY03/19. The

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QoQ increase in systems-related expenses reflected the depreciation stemming from the addition of new systems to help prevent money laundering.

US segment Overview of results for Q4 FY03/20 The US segment reported Q4 operating revenue of JPY6.3bn (+9.9% YoY, +15.7% QoQ), with commission income coming in at JPY3.8bn (+35.2% YoY, +42.4% QoQ), financial income at JPY2.1bn (-17.5% YoY, -15.2% QoQ), and net financial income at JPY1.3bn (-26.5% YoY, -15.5% QoQ).

Net operating revenue of JPY5.5bn was up 9.3% YoY and 20.8% QoQ, operating profit equivalent of JPY501mn was down 33.6% YoY and up 74.6% QoQ, and pre-tax segment profit of JPY284mn was down 62.1% YoY and 0.7% QoQ.

USD-based results On a USD basis, the US segment reported Q4 operating revenue of USD58.2mn (+12.2% YoY, +16.4% QoQ), with commission income coming in at USD35.5mn (+38.0% YoY, +43.2% QoQ), financial income at USD19.4mn (-15.6% YoY, -14.5% QoQ), and net financial income coming in at JPY12.4bn (-24.8% YoY, -14.9% QoQ).

Net operating revenue of USD50.4mn was up 11.7% YoY and 21.5% QoQ, operating profit equivalent of USD4.6mn was down 32.1% YoY and up 75.3% QoQ, and pre-tax segment profit of USD2.6mn was down 61.1% YoY and up 0.3% QoQ.

Commission income Q4 commission income totaled USD35.5mn (+38.0% YoY, +43.2% QoQ) or JPY3.8bn (+35.2% YoY, +42.4% QoQ). With stock market volatility on the rise, TradeStation rolled out its new commission-free TS GO and TS SELECT services and with this, the company was able to increase the number of stock trades handled, which in turn increased its income from payments for order flow. The company noted that commissions were still charged on a per-contract basis for options and futures trades, and that it also saw increases in commission income from mutual fund sales and other sources.

Brokerage commission income of USD24.8mn was up 36.9% YoY and 42.8% QoQ; in yen terms, brokerage commission income of JPY2.7bn was up 34.2% YoY and 42.0% QoQ. Commission income from stock/ETF trading came to USD5.5mn (+20.3% YoY, +56.4% QoQ) or JPY593mn (+17.9% YoY, +55.6% QoQ) and commission income from futures/options trading came to USD19.3mn (+42.4% YoY, +39.3% QoQ) or JPY2.1bn (+39.6% YoY, +38.5% QoQ). The company estimates that the launch of its new commission-free TS GO and TS SELECT services reduced commission income by roughly USD3.4mn, but that this was easily offset by the additional revenues generated by the increase in daily trading by customers, which rose along with the increase in market volatility (as measured by the VIX volatility index) and increase in the number of active accounts.

During Q4, the VIX volatility index averaged 31.2 (+89.6% YoY, +123.2% QoQ). Based on company data, Shared Research estimates that the average number of commissionable contracts/securities trades at the US segment on trading days during Q4 jumped to 140,855 (+79.0% YoY, +76.0% QoQ), with stock trades averaging 53,646 a day (+100.1% YoY, +98.3% QoQ), option trades averaging 14,256 a day (+41.2% YoY, +32.8% YoY), and futures trades averaging 72,683 a day (+74.8% YoY, +72.8% QoQ).

Other fees and commissions totaled USD10.7mn (+40.6% YoY, +44.1% QoQ) or JPY1.2bn (+37.8% YoY, +43.4% QoQ). The double-digit gains here on both a YoY and QoQ comparison basis reflect the increase in income from payments for order flow as customer trading jumped along with the rise in market volatility and the launch of its new commission-free trading services (TS GO and TS SELECT), and increases in fee income following hikes in rates charged for the use of advanced trading tools by inactive accounts. The company said that that the commission income forgone as a result of the introduction of its two new commission-free trading services was 80%–90% covered by the increase in income from payments for order flow.

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Financial income Q4 financial income of USD19.4bn was down 15.6% YoY and 14.5% QoQ; in yen terms, financial income of JPY2.1bn was down 17.5% YoY and 15.2% QoQ. Interest income declined due to lower interest rates. Financial expenses of USD7.0mn were up 8.0% YoY and down 13.7% QoQ; in yen terms, financial expenses of JPY750mn were up 5.6% YoY and down 14.5% QoQ. Net financial income of USD12.4mn was down 24.8% YoY and 14.9% QoQ; in yen terms, net financial income of JPY1.3bn was down 26.5% YoY and 15.5% QoQ. The US segment reported roughly USD10mn in net interest income earned from funds invested in Q4, down from USD12mn in Q3, USD14mn in Q2, and USD15mn in Q1.

In 2018, the Fed steadily raised its federal funds rate target from 1.50% in January to 1.75% in March, to 2.0% in June, to 2.25% in September, then to 2.50% in December. This was followed in 2019 by reduction the fed’s target rate to 2.25% in July, then to 1.75% in October. By March 2020, the fed’s target rate was down to 0.25%.

SG&A expenses Q4 SG&A expenses of USD45.8mn were up 19.5% YoY and 17.8% QoQ; in yen terms, SG&A expenses of JPY5.0bn were up 17.0% YoY and 17.1% QoQ.

Trading-related expenses came in at USD16.3mn (+18.3% YoY, +28.2% QoQ) or JPY1.8bn (+15.9% YoY, +27.5% QoQ), personnel expenses came in at USD18.3mn (+22.6% YoY, +19.1% QoQ) or JPY2.0bn (+20.1% YoY), +18.4% QoQ), and systems- related expenses (includes related real estate and administrative expenses, and depreciation) came in at USD8.4mn (+13.2% YoY, +1.6% QoQ). The YoY and QoQ increase in trading-related expenses reflected the increased trading volume and the accompanying rise in commissions payable; the increase in personnel expenses was driven by bonus payments linked to company earnings.

Crypto Asset segment Overview of results for Q4 FY03/20 For Q4 FY03/20, the Crypto Asset segment reported operating revenue of JPY1.3bn (+305.5% YoY, +161.3% QoQ), with commission income coming in at JPY88mn (+340.0% YoY, +87.2% QoQ) and net trading income at JPY1.2bn (+303.4% YoY, +169.0% QoQ). The pre-tax segment profit of JPY269mn compares with a loss of JPY560mn in Q4 FY03/19 and a loss of JPY127mn in Q3 FY03/20.

The increase in operating revenue on both a YoY and QoQ comparison basis reflected the rise in cryptocurrency trading during the quarter and the accompanying increase in net trading income from trading on cryptocurrency exchanges.

The segment’s move into the black at the pre-tax profit level was aided cost-cutting, which brought Q4 SG&A expenses in at JPY987mn (-28.1% YoY, +69.3% QoQ).

Commission and trading income Commission income includes withdrawal and remittance fees and commissions earned from transactions handled on behalf of clients on the cryptocurrency exchange. Trading income is derived from proprietary trading on the cryptocurrency exchange.

The jump in trading income during Q4 reflects gains during a short period when the cryptocurrency markets were extremely active. According to the Japanese-language Bitcoin information website jpbitcoin.com, cash transactions in Bitcoin on the Japanese domestic market during the January-March 2020 quarter jumped to JPY26.5tn (+86.2% YoY, +43.4% QoQ).

SG&A expenses Q4 SG&A expenses of JPY987mn were down 28.1% YoY and up 69.3% QoQ. The YoY decline reflected declines in outsourcing and personnel expenses, as well as a decrease in real estate-related expenses following the consolidation of offices.

Prior to the completion of Coincheck’s official registration as a cryptocurrency exchange operator (in compliance with all relevant laws and regulations governing financial settlements) in January 2019, Coincheck had been spending heavily to develop various

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system. This development spending declined markedly following the completion of its official registration, however, and Coincheck was also able to cut back spending on personnel, as during the registration process it had had to hire extra outside staff to handle incoming calls but with the completion of its registration as a cryptocurrency exchange operator this extra staff could be dismissed, and offices were consolidated as well. To be precise, quarterly SG&A spending came down from JPY1.4bn in Q4 FY03/19 to JPY1.1bn in Q1 FY03/20, to JPY805mn in Q2, and to JPY583mn in Q3 before turning up to JPY987mn in Q4 as Coincheck let expenses rise along with the upturn in operating revenue.

The JPY318mn increase in SG&A expenses from Q3 to Q4 was driven in large part by the JPY301mn “management guidance fees” covering the entire fiscal year. From FY03/21 onwards, the company said management guidance fees will no longer be calculated on an annual basis but will instead be calculated and booked every quarter.

Pre-tax segment profit In Q4, the Crypto Asset segment reported a pre-tax profit of JPY269mn versus a loss of JPY560mn in Q4 FY03/19 and a loss of JPY127mn in Q3 FY03/20.

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

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Full-year company forecast for FY03/21

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, and the Medium-term outlook section explains the company’s medium-term initiatives.

Most of the company’s earnings come from the Japan and US segments.

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.

There is a strong correlation between the broad-market TOPIX index (for stocks listed on the Tokyo Stock Exchange) and the overall level of monthly trading (in value terms) on the Tokyo and Nagoya stock exchanges, as indicated by the correlation coefficient of 0.81 between the two over the last ten years (April 2010 to March 2020). During the same ten-year timeframe, the correlation coefficient between monthly trading by retail investors and TOPIX was 0.62, the proportion of trading on the Tokyo and Nagoya stock exchanges accounted for by retail investors during that timeframe ranging between 14% and 32%.

The company’s share of equity trading by retail investors has varied over time. Between FY03/12 and FY03/17, its market share shrank from 7.3% to 5.0%. In FY03/20, its market share stood at 5.4%, the improvement reflecting various efforts by the company to regain market share, such as the reduction in commission rates on margin trades implemented in November 2017.

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 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.

With margin trades accounting for more than 50% of all stock trades handled by Monex, Inc., the cuts in commission rates on margin trades discussed above have brought down its average brokerage commission rate from 0.092% in FY03/17 to 0.075% in

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FY02/20. If the proportion of trades accounted for by margin trades continue to rise, the average brokerage commission rate at Monex, Inc. could decline even further depending on the mix of trading under the current rate structure. Shared Research believes this is a real possibility, especially if the proportion of trades accounted for by commission-free trades increases following the launch of its new one-day margin trading plan, which offers commission-free trading on the condition that trades must be round-tripped to repay the margin loan the same day.

Net financial income Balance of margin trades outstanding affected by stock market trends The balance of margin trades outstanding, like equity trading value, is strongly affected by trends in the overall stock market, as indicated by the correlation coefficient of 0.86 between TOPIX and the balance of margin trades outstanding at Monex, Inc. over the last ten years (April 2010 to March 2020), during which time the balance of margin trades outstanding at Monex, Inc. represented roughly 5% of all margin trades outstanding on the Tokyo and Nagoya stock exchanges.

Although the average balance of margin trades outstanding per account at Monex, Inc. was still lower than at competitors as of FY03/20, Shared Research believes this situation may change as a result of recent steps taken by Monex to increase margin account balances, such as reductions in commission rates on margin trades and rollout of a new service offering unlimited short selling on margin starting in March 2019 (for further details, see discussion under Competition).

SG&A expenses Variable expenses include trading-related expenses that vary with the level of trading. Shared Research estimates that these variable expenses run around 15% of net operating revenues.

Fixed expenses are personnel and system-related expenses (including all related rent, administrative expenses, and depreciation). Following the completion of the transition to a new backbone system, system-related expenses in FY03/18 declined to JPY12.3bn, down JPY1.6bn or 11.6% versus the previous year. With the cost-savings from the completion of the transition to a new system dropping out the following year, system-related expenses rose JPY184mn or 1.5% YoY to JPY12.5bn in FY03/19.

System-related expenses came down again in FY03/20, declining JPY1.7bn or 14.0% YoY to JPY10.7bn. The double-digit decline reflected the dropout of the dropout of a JPY1.8bn impairment loss booked in FY03/19 on fixed assets associated with the TradeStation trading platform for Japanese equities and changes in the depreciation period used for other assets, which together brought depreciation charges down JPY1.1bn or 17.8% YoY to JPY5.0bn.

US segment Operating revenue of the US segment consists mainly of brokerage commissions on equity, futures and options trading, payments for order flow, 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 launches TS GO and TS SELECT 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 TS GO 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 TS GO service, TradeStation Securities had been charging a flat-rate of USD5.00

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per trade for stocks and ETFs, and USD5.00 plus USD0.50 per contract for option trades. Under the TS GO pricing plan, the USD5.00 base commission per trade for options will go to zero but it USD0.50 per contract charge will stay.

In November 2019, TradeStation introduced a new pricing plan called TS SELECT. Under this plan, users can trade stocks, ETFs, and options via mobile and online platforms free of commissions. TradeStation Desktop, which comes with various trading tools, can also be used for a competitive price. Options trades are commission-free but cost USD0.60 per contract.

TS GO and TS SELECT pricing plans TS GO TS SELECT Previous price Stocks, ETFs 0 0 USD5.00/trade Options USD0.50/contract USD0.60/contract USD5.00/trade + USD0.50/contract Futures USD0.85/contract/side USD1.50/contract/side USD1.50/contract/side Futures options USD1.50/contract/side USD1.50/contract/side USD1.50/contract/side

Platform usage fees for TS GO and TS SELECT TS GO TS SELECT Previous price Online Free Free Free Mobile Free Free Free TradeStation Desktop Additional charges apply Free Free (USD149.95/month if less than minimum trading value) Minimum balance 0 USD2,000 0 Note: TS GO rates only apply to trades placed via web and mobile platforms. TS GO users must pay an additional USD10.00 per stock and options trade when placing orders via the TradeStation Desktop platform, and an additional charge of USD1.40 per contract for futures trades. In contrast, TS SELECT users can place orders via the TradeStation Desktop platform without additional charges.

Before existing customers can take advantage of the TS GO and TS SELECT commission-free trading plans at TradeStation Securities, they must specifically register for a TS GO or TS SELECT account.

In FY03/20, the US segment reported brokerage commissions of USD81mn (+5.1% YoY), with USD17mn (-5.0% YoY) from stocks and ETFs, and USD64mn (+8.2% YoY) from futures and options. The company said the introduction of its new TS GO and TS SELECT reduced revenue by USD4.2mn in FY03/20. It expects the impact on commission income to be blunted by the additional step required for users to switch from their existing plan to TS GO or TS SELECT, and commissions would still be received on a per-contract basis for options and futures trades. Meanwhile, the company plans to partially offset the impact of commission-free trades by increasing payment for order flow and raising the tool usage fees for non-active accounts.

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. With customer assets in custody (cash) of some USD2.0bn, US operations generated roughly USD50mn in interest income in this manner in FY03/20 (compared with USD45mn in FY03/19).

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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

In 2018, the Fed steadily raised its federal funds rate target from 1.50% in January to 1.75% in March, to 2.0% in June, to 2.25% in September, then to 2.50% in December. This was followed in 2019 by reduction in its target rate to 2.25% in July, then to 1.75% in October. By March 2020, the Fed’s target rate was down to 0.25%.

In FY3/20, the US segment reported roughly USD10mn in net interest income earned from funds invested in Q4 compared with USD12mn in Q3, USD14mn in Q2, and USD15mn in Q1 FY03/20.

Other: Launch of cryptocurrency business TradeStation Crypto, Inc., a subsidiary of TradeStation Group, began offering cryptocurrency trading services in November 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 run between 20% and 30% of 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). The Crypto Asset segment posted an operating loss of JPY1.7bn 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.

The sharp jump in operating revenue at the Crypto Asset segment in FY03/20 reflected a combination of increasing trading on the cryptocurrency markets as a whole, a rise in the number of registered users at Coincheck, the addition of new cryptocurrencies to Coincheck’s exchange, and increases in trading income from trading on the exchange. Earnings were further aided by a decline in SG&A spending, leaving the segment in the black with a pre-tax profit of JPY293mn versus a loss in FY03/19.

With Coincheck having reduced its SG&A expenses burden, Shared Research believes it now has an earnings structure that is more likely to be profitable (depending on conditions in the cryptocurrency markets).

Factors expected to affect revenue and earnings in FY03/21 Other than trends in the economy and the stock market, the following factors are expected to have a significant impact on the company’s revenues and earnings in FY03/21.

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Cost-savings from personnel reductions at US segment Under pressure from the move to commission-free trading and falling interest rating, US subsidiary TradeStation Group reduced its employee headcount by 50, or roughly 10%, at the end of April 2020. According to the company, this move will reduce personnel expenses by about JPY750mn per annum, though the cost-savings in FY03/21 is only expected to be around JPY650mn owing to one-time severance payments to the staff let go in April.

Cost-savings from the termination of the TradeStation for Japanese Equities The company plans to terminate its TradeStation for Japanese Equities service in August 2020. Designed as a trading tool for active investors, TradeStation for Japanese Equities was launched by Monex, Inc. in 2016 as a standalone trading platform that operated separately from its comprehensive securities trading accounts. However, with the Japanese equity trading functions now slated to be integrated into the company’s comprehensive securities trading accounts, the company anticipates a cost- savings of roughly JPY200mn a year from the termination of TradeStation for Japanese Equities as a standalone service.

Establishment of the Monex Activist Fund The company plans to establish the Monex Activist Fund as a mutual fund in June 2020. Nicknamed the “Future of Japan” fund, the mutual fund will be managed by Monex Asset Management and will engage with the listed Japanese companies with which it has invested.

Plans call for Monex, Inc. to handle the sales of the new mutual fund and for subsidiary Monex Asset Management to serve as the fund manager with subsidiary Japan Catalyst, Inc. (JCI) providing investment advisory services for the mother fund holding the companies in which the Monex Activist Fund has invested. From the fund, the company expects to receive a sales commission rate of 3.0% on the principal value (excluding tax), a trust fee (i.e., management fee) of 2.0% per annum (excluding tax) on net asset value, and a performance fee of 20% (excluding taxes) on the high-water mark of the fund.

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Medium-term outlook Shift in business model from broker services to asset management services In the wake of the move by major online brokers in the US to commission-free trading in October 2019, Monex changed its own direction in Q3 FY03/20 and began working to shift its business model from a brokerage service-based model to an asset management service-based model. Under the new business model, the Monex Group will be focusing less on generating brokerage commissions and more on receiving compensation for services to support the asset building/asset management needs of its customers.

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 services 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.

Shared Research sees the Japan segment, US segment, and Crypto Asset serving as growth drivers over the medium term.

Japan segment In the Japan segment, the company aims to strengthen services with greater earnings potential (e.g., a broader lineup of margin trading services). It also looks to reinforce services in which it holds an edge (e.g., US equity trading), and to launch services targeting assets under custody (e.g., advisory services through Japan Catalyst, Inc.). Over the medium term, the company plans to expand earnings at the Japan segment by increasing income from US equities, net financial income, and trust fees (on mutual funds), despite the drop in trading commissions from Japanese equities caused by the race to lower commissions.

SBI Holdings, the parent company of SBI Securities, the largest online broker in Japan, announced at its 1H FY03/20 briefing held in October 2019 that it aims to introduce commission-free trading for all trades under a three-year plan, starting with proprietary trading system (PTS) overnight trades. (However, the presentation material for Q3 FY03/20 results did not refer to a three-year plan, but only indicated that the company would promote commission-free trading based on progress made by new and existing brokerages in implementing commission-free trading.) SBI Holdings plans to follow the moves by industry peers to lower trading commissions in order to maintain competitiveness.

Revenue structure of the Japan segment

Source: Shared Research based on company data

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 FY03/20.

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Margin accounts: number of accounts

FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 5- y e a r CA GR SBI Securities 355,375 409,473 462,555 527,102 592,312 656,301 13.1% Rakuten Securities 187,514 205,861 222,452 252,675 282,938 327,364 11.8% Monex, Inc. 97,515 105,041 110,954 118,921 127,444 135,213 6.8% Matsui Securities 159,375 169,534 177,242 184,731 190,961 201,521 4.8% au kabu.com Securities 113,528 127,290 138,146 146,730 153,839 159,488 7.0% Source: Shared Research based on each company’s data

Margin accounts: as a percent of total accounts

FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 SBI Securities 10.9% 11.5% 12.0% 12.4% 12.8% 12.1% Rakuten Securities 10.2% 10.1% 9.9% 9.7% 9.4% 8.7% Monex, Inc. 6.4% 6.4% 6.5% 6.8% 7.0% 7.3% Matsui Securities 15.9% 16.1% 16.2% 16.3% 16.1% 16.3% au kabu.com Securities 12.3% 12.7% 13.2% 13.5% 13.8% 13.8% Source: Shared Research based on each company’s data

Margin accounts: total margin trades outstanding at fiscal year-end

(JPYmn) FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 5- y e a r CA GR SBI Securities 787,000 677,000 799,000 1,001,000 838,000 647,000 -3.8% Rakuten Securities 358,480 303,752 353,418 468,483 405,325 335,902 -1.3% Monex, Inc. 197,800 163,400 166,100 205,300 157,000 126,800 -8.5% Matsui Securities 319,024 255,177 278,086 331,931 232,829 191,676 -9.7% au kabu.com Securities 289,124 265,811 295,752 335,800 299,300 230,000 -4.5% Source: Shared Research based on each company’s data

Margin accounts: average balance of margin trades outstanding per account

(JPYmn) FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 SBI Securities 0.24 0.19 0.21 0.23 0.18 0.12 Rakuten Securities 0.19 0.15 0.16 0.18 0.13 0.09 Monex, Inc. 0.13 0.10 0.10 0.12 0.09 0.07 Matsui Securities 0.32 0.24 0.25 0.29 0.20 0.15 au kabu.com Securities 0.31 0.27 0.28 0.31 0.27 0.20 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 this relation, we note that following the reduction in its brokerage commission rates on margins trades, Monex, Inc. saw the number of its margin trading accounts as a percent of all customer accounts rise from 6.5% in FY03/17 to 7.3% in FY03/20, while its share of margin trading by retail investors on the Tokyo and Nagoya stock exchanges rose from 5.1% to 5.4%.

During the same timeframe, margin trades as a percent of all equity trades handled by Monex, Inc. rose from 48.4% in FY03/17 to 56.7% in FY03/20. And, with these low-commission margin trades accounting for a larger portion of all equity trades handled by Monex, Inc., its average brokerage commission rate came down from 0.092% in FY03/17 to 0.073% in FY03/20 (excluding the reversal of provision for customer reward points).

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As of the end of FY03/20, Monex, Inc. reported a total of JPY126.8bn in margin trades outstanding in customer accounts, down from JPY16 6.0bn at the end of FY03/17, while its share of margin trades outstanding on the Tokyo and Nagoya stock exchanges slipped down to 8.3% versus 8.8% at the end of FY03/17.

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.

In August 2019, Monex, Inc. lowered its stock lending rate for unlimited short selling in negotiable margin trades to the lowest in the industry of 1.10% from 2.00% (annualized).

Plans to expand margin trading services from 2020 Monex, Inc. plans to begin offering new margin trading services from 2020. In February 2020, it intends to add short-term margin trading and one-day margin trading services. At industry peers, au Kabucom Securities offers short-term trades in negotiable margin trades for stocks that are hard to procure with a maximum repayment period of 13 days. SBI Securities, Rakuten Securities, and Matsui Securities offer commission-free trading for daily margin trades. In April 2020, Monex, Inc. plans to roll out a margin trading service on its proprietary trading system (PTS). SBI Securities and Rakuten Securities also offer the same function on their PTS. Between summer and fall 2020, Monex, Inc. aims to start offering a stock lending service. A stock lending service is a service where users can lend a stock they own for use as a guarantee in margin trades executed by other customers (i.e., “substitute securities”). By lending their own stock to others, customers will be able to receive a stock lending commission depending on the lending period of the substitute securities, and reduce costs associated with margin trading. SBI Securities, Rakuten Securities, Matsui Securities, and au Kabucom Securities offer the same service.

Establishment of Japan Catalyst, Inc. (investment advisory company) and the Monex Activist Fund In January 2020, Monex, Inc. established Japan Catalyst, Inc. (JCI), an investment advisory firm that pursues investment returns through proposals to and engagement with listed Japanese firms.

JCI’s unique qualities include the following. First, it is funded by retail investors in Japan. Second, it provides advice from investment managers based in Japan. Third, it facilitates a holistic engagement that consists of proposals to and dialogue with target companies, awareness-building activities for retail investors, and proposals to and dialogue with the government, stock exchanges, business community, and media.

Monex Activist Fund Plans call for establishing the Monex Activist Fund as a mutual fund in June 2020. Nicknamed the “Future of Japan” fund, the mutual fund will be managed by Monex Asset Management and will engage with the listed companies in which it has invested. JCI will provide investment advisory services for the mother fund holding the companies in which the Monex Activist Fund has invested.

Monex, Inc. will handle the sales of the new mutual fund and subsidiary Monex Asset Management will serve as the fund manager with subsidiary Japan Catalyst, Inc. (JCI) providing investment advisory services for the mother fund holding the companies in which the Monex Activist Fund has invested. From the fund, the company expects to receive a sales commission rate of 3.0% on the principal value (excluding tax), a trust fee (i.e., management fee) of 2.0% per annum (excluding tax) on net asset value, and a performance fee of 20% (excluding taxes) on the gains to high-water mark of the fund*.

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*The Monex Activist Fund is being established with an initial principal value of JPY10,000. The high-water mark will be the highest value subsequently reached by the fund. The performance fee will initially be calculated on the difference between the initial principal value and the first high-water mark. The high-water mark will then be adjusted by the amount of the performance fee paid out and that adjusted figure will be the basis for calculating the performance fee to the next high-water mark.

US equity trading In June 2011, Monex Group acquired TradeStation Group, Inc. in the US and made it a subsidiary. To take advantage of group synergies, in November 2012 Monex, Inc. fully revamped its US equities trading service by introducing the trading system developed by TradeStation Securities, Inc. and TradeStation Technologies, Inc., which are subsidiaries of TradeStation Group, Inc. 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.

US equity trading services offered by online brokers in Japan No. of US stocks Commissions Currency exchange commissions Monex, Inc. Over 3,600 0.45% of contract price JPY0 when buying (min: USD0, max: USD20) (JPY0.25/USD when selling) SBI Securities Over 3,300 0.45% of contract price JPY0.25/USD/side (min: USD0, max: USD20) (JPY0.04/USD/side when trading via SBI Sumishin Net Bank) Rakuten Securities About 3,000 0.45% of contract price JPY0.25/USD/side (min: USD0, max: USD20) Source: Shared Research based on each company’s data

In Q3 FY03/20, the number of accounts for trading foreign stocks was around 230,000, accounting for roughly 12% of the total number of accounts. The company explains that both the number of trades and the number of accounts are on the rise.

In FY03/20, income from US stock trades accounted for JPY794mn (+41.3% YoY), or about 6% of total commission income in the Japan segment. Over the medium term, the company aims to increase revenue from US stock trades by broadening its services.

US segment In October 2019, a major online broker in the US introduced commission-free trading. In response, TradeStation launched two commission-free plans: TS GO in October 2019, and TS SELECT in November 2019. TS GO offers commission-free trading for stocks, options, and ETF orders placed on its mobile or online platforms. Likewise, TS SELECT offers commission-free trading for stocks, options, and ETF orders placed on its mobile and online platforms, but also comes with competitive pricing for orders placed on TradeStation Desktop, which has a variety of other trading tools.

Revenue structure of the US segment

Source: Shared Research based on company data

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The company expects brokerage commissions for stocks and options to fall over the medium term in the US segment due to the introduction of the commission-free plans. However, it expects a rise in net financial income stemming from an expanded customer base and larger assets under custody. It also believes the higher trading volume will boost payment for order flow and other revenue streams. Moreover, the company looks to diversify its revenue source through the launch of its crypto asset business (i.e., service launch of TradeStation Crypto) and grow revenue through additional revenue from education-related services (e.g., the rollout of YouCanTrade).

The company estimates the introduction of its commission-free TS GO and TS SELECT services reduced brokerage commission income by about USD4.2mn in FY03/20 and will reduce commission income by about USD10mn in FY03/21. At the same time, the company is still projecting an increase in commission income in FY03/21 based on (1) the expected increase in customer trading in response to the new commission-free trading plans and the accompanying increase its income from payments for order flow (counted under commission income), and (2) additional fee income coming from increases in user fees charged for the use of advanced trading tools by inactive accounts. The company also envisions ongoing growth in revenue over the medium term stemming from investor educational business and other new businesses and initiatives, such as the integration of its platforms with the trading community TradingView.

Image of offsetting revenue decline due to TS GO and TS SELECT with new businesses

Source: Shared Research based on company data

Commission-free trading plans by peers and introduction of TS GO and TS SELECT 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 TS GO 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 TS GO 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. The TS GO service makes it free to trade options but still charges USD0.50 per contract.

In November 2019, TradeStation introduced a new pricing plan called TS SELECT. Under this plan, users can trade stocks, ETFs, and options via mobile and online platforms free of commissions. TradeStation Desktop, which comes with various trading tools, can also be used for a competitive price. Options trades are commission-free but cost USD0.60 per contract.

TS GO and TS SELECT pricing plans TS GO TS SELECT Previous price Stocks, ETFs 0 0 USD5.00/trade Options USD0.50/contract USD0.60/contract USD5.00/trade + USD0.50/contract Futures USD0.85/contract/side USD1.50/contract/side USD1.50/contract/side Futures options USD1.50/contract/side USD1.50/contract/side USD1.50/contract/side

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Platform usage fees for TS GO and TS SELECT TS GO TS SELECT Previous price Online Free Free Free Mobile Free Free Free TradeStation Desktop Additional charges apply Free Free (USD149.95/month if less than minimum trading value) Minimum balance 0 USD2,000 0 Note: TS GO rates only apply to trades placed via web and mobile platforms. TS GO users must pay an additional USD10.00 per stock and options trade when placing orders via the TradeStation Desktop platform, and an additional charge of USD1.40 per contract for futures trades. In contrast, TS SELECT users can place orders via the TradeStation Desktop platform without additional charges.

Launch of YouCanTrade In January 2020, TradeStation Group, Inc. launched YouCanTrade, an online investment education media service and trading community. YouCanTrade is offered exclusively by You Can Trade, Inc., a new subsidiary of the TradeStation Group.

YouCanTrade delivers social community services to traders, who can watch educational demos of investing and trading in an actual trading room and learn from or teach traders of various level of experience. YouCanTrade also functions as a trading community where traders can share with other traders about the approaches and techniques they have acquired and also learn from veteran traders designated as “coaches.”

Coach: On YouCanTrade, a coach is someone who runs their trading channel where they can share their educational demos live to channel viewers. Note that coaches are not affiliated with YouCanTrade, an investment advisory firm, or securities company. Their aim is not to solicit or sell any particular securities, or give advice and recommendations to viewers.

Began offering services on TradeStation Crypto TradeStation Crypto, Inc., a subsidiary of TradeStation Group, Inc., began offering services to the public on its cryptocurrency exchange platform TradeStation Crypto in November 2019.

TradeStation Crypto is the first service ever to apply the traditional online brokerage model to cryptocurrency trades. Although other exchanges on the market tend to be fragmented and self-contained, TradeStation Crypto aggregates the liquidity pools of multiple markets by integrating their data feeds. The platform claims to offer superior trade execution to customers by using an automated order routing system.

Crypto Asset segment 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.

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.

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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 2.03mn accountholders (as of March 2020), most of which are in their 20s, 30s, or 40s. In contrast, most of the roughly 1.86mn 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.

Impact of the consolidation of Coincheck on business model and earnings Coincheck offers two cryptocurrency services: exchange and brokerage. The main source of revenue in the business is income on bid-ask spreads for altcoin trades through cryptocurrency brokerage (the revenue is recorded as net trading income).

Coincheck services and income Exchange Brokerage Cryptocurrency Bitcoin Bitcoin, 10 types of altcoins Main customers Experienced investors Amateur investors Coincheck, Inc.’s income No commissions, no spread Income from price difference (swap fees, borrowing fees, deposit/withdrawal fees, and remittance fees may apply) Profitability Low High Covering No (arm’s length trades between customers) Yes (almost all orders placed by customers are covered with an offsetting trade that counters the risk of an order already placed) Source: Shared Research based on company data

Overview of financial results at Crypto Asset segment and mainstay subsidiary Coincheck, Inc. Monex Group included Coincheck in consolidated results starting in FY03/19. For FY03/19, the Crypto Asset segment with Coincheck as its main business reported operating revenue of JPY2.1bn, 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.

For FY03/20, the Crypto Asset segment reported full-year operating revenue of JPY3.8bn, SG&A expenses of JPY3.5bn, and operating an operating profit equivalent of JPY310mn. The sharp jump in operating revenue over FY03/19 reflected a combination of increasing trading on the cryptocurrency markets as a whole, a rise in the number of registered users at

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Coincheck, the addition of new cryptocurrencies to Coincheck’s exchange, and increases in trading income from trading on the exchange. Earnings were further aided by a decline in SG&A expenses, leaving the segment in the black for the full year versus a loss in FY03/19.

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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 au Kabucom 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 (FY03/20): Japan 49.9%, US 40.7%, and Crypto Asset 7.8% (ratio of each segment’s net operating revenue to the sum of net operating revenues for all segments). Pre-tax profit by segment: Japan 53.9%, US 42.3%, Crypto Asset 7.0%.

Monex, Inc. is the core business in Japan. Revenue comes from stock brokerage commissions received (40.8% of Japan ◤ segment net operating revenue in FY03/20), trading income (20.7% of revenue), and net financial income (27.1% of revenue). Segment SG&A expenses are mainly fixed, with trading-related expenses accounting for 23.6%, personnel expenses 20.8%, and system-related expenses 49.4% of segment SG&A expenses in FY03/20.

In FY03/20, main group subsidiary Monex, Inc. had 1.86mn accounts (third among Japan’s top five online brokerages; ◤ 13.8% share), total customer assets in custody of JPY3.8tn (third; 14.7%), equity trading value of JPY13.5tn (fifth; 6.4%), and margin trading balance of JPY126.8bn (fifth; 8.3%). 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 (61.7% of US ◤ segment net operating revenue in FY03/20) and net financial income (33.0%). US segment SG&A expenses comprise transaction-related expenses (34.1% of segment SG&A expenses in FY03/20), personnel expenses (40.4%), and system- related expenses (19.4%). Personnel expenses are high due to hiring systems developers.

The Crypto Asset business is operated by 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 (22.3% of segment SG&A expenses in FY03/20), personnel expenses (36.7%), and office expenses (10.9%). As of the end of FY03/20, Coincheck had 2.03mn registered users and 940,000 verified accountholders.

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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 providers are 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 au Kabucom Securities. These top five online brokers account for more than 80% of the equity trading value of retail investors (see Market and value chain section for details). In FY03/20, Monex, Inc. had 1.86mn customer accounts (third among the top five online brokers in FY03/20), 135,000 margin accounts (fifth), customer assets in custody of JPY3.8tn (third), balance of margin trades outstanding of JPY126.8bn (fifth), and equity trading value of JPY13.5tn (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 US 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 FY03/20, 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.

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.

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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. au Kabucom 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.

Margin trading (fees per trade plan) of SBI Securities, Rakuten Securities, and Monex, Inc., as well as cash trading of au Kabucom Securities offer lower commission rates as the total trading value increases. Matsui Securities and cash trading at Monex, Inc. charge the same rate regardless of the total value. SBI Securities, Rakuten Securities, Monex, Inc., and au Kabucom 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) A v er age commis s ion r at e 100,000 200,000 300,000 500,000 1mn 2mn 3mn Simple average For trading value of 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 JPY3mn traded 0.08% 0.08% SBI Securities Standard Plan Per trade 90 105 250 487 921 0.06% 0.04% Active Plan Per day 0 762 1,162 1,562 0.03% 0.05% Rakuten Securities Super Discount Plan Per trade 90 105 250 486 921 0.06% 0.04% Daily Flat Rate Plan Per day 0 857 2,000 3,000 0.04% 0.07% Matsui Securities Per day 0 1,000 2,000 3,000 0.04% 0.08% kabu.com Securities Per trade 90 180 250 Trading v alue x 0.09% + JPY90; max. JPY3,690 0.09% 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) A v er age commis s ion r at e (Per day, or per trade) 100,000 200,000 300,000 500,000 1mn 2mn 3mn Simple average For trading value of 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 JPY3mn traded 0.08% 0.08% SBI Securities Standard Plan Per trade 90 135 180 350 0.05% 0.03% Active Plan Per day 0 477 877 1,277 0.02% 0.03% Rakuten Securities Super Discount Plan Per trade 90 135 180 350 0.05% 0.03% Daily Flat Rate Plan Per day 0 858 2,000 3,000 0.04% 0.07% Matsui Securities Per day 0 1,000 2,000 3,000 0.04% 0.08% kabu.com Securities Per trade 0 0.00% 0.00% Source: Shared Research based on company data *Simple average = simple average equity trading commission / trade value threshold

In FY03/20, commission rates (commission rates / equity trading value) were around 0.03% for SBI Securities, Rakuten Securities, and au Kabucom Securities, 0.05% for Matsui Securities, and 0.08% for Monex, Inc. The company sets its commission rates higher than rivals, aiming to differentiate through its trading tools, product range, and investor education programs. According

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to the company, average online brokerage commission rates fall within the range of one stock’s nominal price movement. Therefore, it thinks that by offering accelerated order placement and executing orders faster than movements in a stock’s nominal price 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 au Kabucom 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 moving to commission-free margin trades in December 2019 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.

Many trading order options Compared with its rivals, Monex offers a wider selection of trading order options for both cash and margin equity trades than its competitors. 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 au 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. 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. In February 2020, it rolled out a new one-day margin trading plan, which offers commission-free trading on the condition that trades must be round-tripped the same day, thereby repaying the margin loan. As a latecomer to margin trading services, as of FY3/20 Monex, Inc. still ranks fifth among the five major online brokerages in margin trading accounts (versus third in overall accounts), and fifth in margin trading balance (versus third in assets under custody), but since FY03/17 has been making progress towards closing the gap with the addition of new margin services.

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.

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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% 331 Matsui Securities 3.10% 1.15% 4.10% 2.00% 30% 20% 935 SBI Securities 2.80% 1.15% 2.80% 1.10% 33% 20% 816 Rakuten Securities 2.80% 1.10% 2.80% 1.10% 30% 20% 1,436 au kabu.com Securities 3.98% 1.15% 3.79% 2.25% 30% 25% 2,694 Source: Shared Research based on company data Monex, Inc.’s “short-term margin trading” service (requiring settlement within 15 days) has an annualized stock lending fee of 3.9%, its one-day margin trading service (requiring same-day repayment of margin loan) charges an annualized interest rate/stock lending fee of 1.8% for trades of less than JPY1.0mn. SBI Securities standardized margin trading service for large investors charges an annualized interest rate of 2.28% for buyers under standardized margin trades and a lower 2.10% interest rate under negotiated margin trades with no settlement deadline, au Kabucom Securities standardized margin trading service for large investors charges an annualized interest rate of 1.34%-2.68% for buyers under standardized margin trades and a lower interest rate of 1.15%-2.49% under negotiated margin trades,

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.

Monex, Inc. offers separate “Monex FX” accounts for forex margin trading only, but forex margin trading can also be done from its comprehensive securities trading accounts. The difference between “Monex FX” and “FX Plus” accounts is the bid-ask spread available to customers. For customers using FX Plus, the bid-ask spread is fixed in principle (subject to conditions) while customers in Monex FX accounts will face different bid-ask spreads depending on the size of their order.

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.

Forex spreads Under its FX Plus service, Monex, Inc. narrowed the bid-ask spread on all currency pairs in November 2018. As of May 2020, the bid-ask spread on the USD/JPY currency pair was between JPY0.002 and JPY 0.023. Prior to the move to narrow the bid-ask spread on all currency pairs in November 2018, the bid-ask spread under FX Plus was around 2 pips (or JPY0.02), which was substantially wider than the spread then available from competitors.

As of May 2020, the bid-ask spread available from SBI Securities on the USD/JPY currency pair was JPY0.0018 to JPY0.028 (and JPY0.0009 for up to 1,000 trading units), the bid-ask spread available from Rakuten Securities was JPY0.0030, and the bid-ask spread available from GMO Click Securities was JPY0.0020.

Forex commissions Both FX Plus service and Monex FX service do not commissions on forex trades, as is the case at most competitors.

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.

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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.

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

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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.

Mutual funds (investment trusts) As of May 2020, Monex, Inc. offered a mutual fund lineup of 1,172 funds. The balance of customer assets held in mutual funds was roughly JPY353.6bn in FY03/20 (-11.8% YoY).

Monex, Inc. has marketed mutual funds for many years and has a long track record of providing highly specialized funds to retail investors. Thus, the balance of mutual funds 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 customer assets held in mutual funds.

Monex, Inc. led the industry in offering highly specialized mutual funds to retail investors, including alternative investment products and robo-funds. Starting in June 2020, it will begin handling the Monex Activist Fund (nicknamed the “Future of Japan” fund).

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.) 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 was redeemed in March 2019. Monex Activist Fund (nicknamed the “Future of Japan” fund): The company will establish the Monex Activist Fund as a mutual ▷ fund in June 2020. The fund will engage with the listed Japanese companies with which it has invested. Monex, Inc. will handle the sales of the new mutual fund and for subsidiary Monex Asset Management to serve as the fund manager with subsidiary Japan Catalyst, Inc. (JCI) providing investment advisory services for the mother fund holding the companies in which the Monex Activist Fund has invested. From the fund, the company expects to receive a sales commission rate of 3.0% on the principal value (excluding tax), a trust fee (i.e., management fee) of 2.0% per annum (excluding tax) on net asset value, and a performance fee of 20% (excluding taxes) on the gains to high-water mark of the fund*.

*The Monex Activist Fund is being established with an initial principal value of JPY10,000. The high-water mark will be the highest value subsequently reached by the fund. The performance fee will initially be calculated on the difference between the initial principal value and the first high-water mark. The high-water mark will then be adjusted by the amount of the performance fee paid out and that adjusted figure will be the basis for calculating the performance fee to the next high-water mark.

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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 3,600 stocks) at the lowest commissions (0.45% of transaction value, with a minimum fee of USD0 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.

US equity trading services offered by online brokerages in Japan No. of US stocks Commissions Currency exchange commissions Monex, Inc. Over 3,600 0.45% of contract price JPY0 when buying (min: USD0, max: USD20) (JPY0.25/USD when selling) SBI Securities Over 3,300 0.45% of contract price JPY0.25/USD/side (min: USD0, max: USD20) (JPY0.04/USD/side when trading via SBI Sumishin Net Bank) Rakuten Securities about 3,000 0.45% of contract price JPY0.25/USD/side (min: USD0, max: USD20) Source: Shared Research based on each company’s data

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 13.0 22.1 ％ ％ 60s 14.8 19.8 ％ ％ 50s 24.3 20.9 ％ ％ 40s 28.1 20.8 ％ ％ 30s 13.7 12.0 ％ ％ Below 30 5.8 4.4 ％ ％ 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 2019.

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, au Kabucom Securities). Customer assets per account has also trended second to SBI Securities.

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Customer assets per account

FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 SBI Securities 2.2 2.3 2.5 2.3 2.4 2.7 2.5 2.0 Rakuten Securities 1.6 1.6 1.9 1.7 1.8 1.9 1.9 1.8 Monex, Inc. 2.1 2.2 2.4 2.1 2.2 2.4 2.2 2.0 Matsui Securities 2.0 2.0 2.2 2.0 2.1 2.2 2.0 1.7 au kabu.com Securities 1.8 1.9 2.2 1.9 2.0 2.1 2.0 1.8 Source: Shared Research based on each company’s data

Lower trade frequency On frequency of customers trading (calculated equity trading value / customer assets under custody), Monex accountholders generally trade less frequently than accountholders at competing online brokers.

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 FY03/20 SBI Securities 10.1 20.8 14.5 14.0 10.5 10.7 8.7 8.2 Rakuten Securities 11.7 22.3 14.6 13.2 10.6 11.4 9.9 9.7 Monex, Inc. 4.4 8.0 5.0 4.7 3.7 4.2 3.4 3.5 Matsui Securities 8.4 22.3 17.7 18.1 15.9 14.8 11.7 11.3 au kabu.com Securities 8.6 18.0 14.6 14.5 11.6 12.5 10.7 10.5 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 FY03/20 SBI Securities 10.2% 10.7% 10.9% 11.5% 12.0% 12.4% 12.8% 12.1% Rakuten Securities 10.5% 10.3% 10.2% 10.1% 9.9% 9.7% 9.4% 8.7% Monex, Inc. - 6.4% 6.4% 6.5% 6.8% 7.0% 7.3% Matsui Securities 15.5% 15.7% 15.9% 16.1% 16.2% 16.3% 16.1% 16.3% au kabu.com Securities 11.0% 11.5% 12.3% 12.7% 13.2% 13.5% 13.8% 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 FY03/20 SBI Securities 0.20 0.23 0.24 0.19 0.21 0.23 0.18 0.12 Rakuten Securities 0.18 0.19 0.19 0.15 0.16 0.18 0.13 0.09 Monex, Inc. 0.13 0.13 0.13 0.10 0.10 0.12 0.09 0.07 Matsui Securities 0.33 0.31 0.32 0.24 0.25 0.29 0.20 0.15 au kabu.com Securities 0.25 0.28 0.31 0.27 0.28 0.31 0.27 0.20 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 the end of FY03/20, TradeStation Group had a customer base of 102,012 active accounts (+12.6% YoY) and customer assets in custody totaling USD5.4bn (-2.1% 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 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.

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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.

Introduction of TS GO and TS SELECT pricing plans from October 2019 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, E*Trade, and other online brokers quickly followed suit with their own commission-free trading packages, as did TradeStation Securities, rolling out its new TS GO 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 TS GO 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 TS GO pricing plan, the USD5.00 base commission per trade for options will go to zero but its USD0.50 per contract charge will stay.

In November 2019, TradeStation introduced a new pricing plan called TS SELECT. Under this plan, users can trade stocks, ETFs, and options via mobile and online platforms free of commissions. TradeStation Desktop, which comes with various trading tools, can also be used for a competitive price. Options trades are commission-free but cost USD0.60 per contract.

TS GO and TS SELECT pricing plans TS GO TS SELECT Previous price Stocks, ETFs 0 0 USD5.00/trade Options USD0.50/contract USD0.60/contract USD5.00/trade + USD0.50/contract Futures USD0.85/contract/side USD1.50/contract/side USD1.50/contract/side Futures options USD1.50/contract/side USD1.50/contract/side USD1.50/contract/side

Platform usage fees for TS GO and TS SELECT TS GO TS SELECT Previous price Online Free Free Free Mobile Free Free Free TradeStation Desktop Additional charges apply Free Free (USD149.95/month if less than minimum trading value) Minimum balance 0 USD2,000 0 Note: TS GO rates only apply to trades placed via web and mobile platforms. TS GO users must pay an additional USD10.00 per stock and options trade when placing orders via the TradeStation Desktop platform, and an additional charge of USD1.40 per contract for futures trades. In contrast, TS SELECT users can place orders via the TradeStation Desktop platform without additional charges.

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Fee structures of major US online brokerages

Minimum Stock trade Opt ion fee Futures (USD) Deposit Fee (flat) Base Per contract TradeStation 2,000 0.00 0.00 0.60 1.50 Fidelit y 0 0 0 0.65 - TD Ameritrade 0 0 0 0.65 2.25 E*Trade 0 0 0 0.65 1.50 Charles Schwab 0 0 0 0.65 1.5 Source: Shared Research based on each company’s data Note: Minimum deposit and fees of the TS SELECT plan are shown for TradeStation.

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.

Major US online brokerages No. of indices 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 285 programming language EasyLanguage allows active traders to customize indicators and trade signals, and program trades. Highly recognized for qualit y of order execut ion and a Fidelit y 166 research tool offering access to third party research reports (16 companies).

Offers quality trading platform, research, investor education, TD Ameritrade 489 and customer services.

Highly rated trading platform and mobile app. E*Trade 119

Highly rated for strong research capability; offers proprietary Charles Schwab 41 stock ratings.

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 ranked third in the Best for Frequent Traders category in Barron’s review of online brokerages published in February ▷ 2019. TradeStation has been rated Best Platform Technology in the Online Broker Review conducted by US online financial medium ▷ StockBrokers.com for eight consecutive years, and has been rated the Best Platform for Active Traders for ten consecutive years. TradeStation was rated Best in Class in the Mobile Trading, Options Trading, Future Trading, Platform & Tools, Commissions, Order Execution Service, and Professional Trading categories (published January 2020). 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 16th consecutive year. TradeStation also ranked highest in two other categories (published March 2020). TradeStation announced in February 2019 that it was selected for Best Online Stock Brokers: Equity Trading Tools, and ranked in ▷ the top four for Best Online Stock Brokers: Options Trading Platform and ranked in the top five for Best Online Stock Brokers: Educational Resources in the seventh annual survey of active investors (more than 4,000 active investors) conducted by Investor’s Business Daily (published January 2020).

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Earnings structure

Earnings structure FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 (JPYmn) IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS Operating revenue 36,090 54,722 50,975 54,271 45,831 53,635 52,175 53,226 YoY 18.1% 51.6% -6.8% 6.5% -15.6% 17.0% -2.7% 2.0% Commissions received 20,367 33,542 30,079 32,152 26,349 29,196 25,741 25,375 YoY 19.6% 64.7% -10.3% 6.9% -18.0% 10.8% -11.8% -1.4% % of net operating revenue 60.3% 67.0% 66.5% 64.8% 63.0% 59.4% 54.3% 52.9% Brokerage 15,676 27,572 23,822 25,317 20,141 22,540 19,463 19,383 YoY 20.2% 75.9% -13.6% 6.3% -20.4% 11.9% -13.7% -0.4% Equity and ETF 11,303 22,013 17,584 17,795 14,193 15,974 12,610 12,022 Futures and options 4,189 5,429 6,217 7,522 5,948 6,566 6,851 7,309 OSE FX 184 130 22 - - - 3 52 Underw rit ing and dist ribut ion 47 121 100 153 136 172 70 105 Subscript ion and dist ribut ion 494 917 708 792 442 459 355 176 Ot her commissions 4,149 4,932 5,449 5,890 5,629 6,025 5,852 5,712 YoY 19.7% 18.9% 10.5% 8.1% -4.4% 7.0% -2.9% -2.4% FX fees (OTC retail FX) 73 147 103 117 116 79 69 16 Administrative and transfer fees for margin trading 409 367 355 343 311 Agent fee for investment trust trading 1,273 1,518 1,702 1,737 1,539 1,692 1,677 1,565 Others 2,803 3,267 3,643 3,628 3,607 3,899 3,762 3,820 Net t rading income 6,974 8,011 6,242 6,671 4,498 3,865 6,461 8,550 YoY 12.5% 14.9% -22.1% 6.9% -32.6% -14.1% 67.2% 32.3% % of net operating revenue 20.7% 16.0% 13.8% 13.4% 10.7% 7.9% 13.6% 17.8% Interest income 8,195 12,583 13,987 14,610 14,313 19,349 19,242 18,579 YoY 20.3% 53.5% 11.2% 4.5% -2.0% 35.2% -0.6% -3.4% % of net operating revenue 24.3% 25.1% 30.9% 29.4% 34.2% 39.4% 40.6% 38.7% Other operating revenue 554 587 667 839 671 1,225 731 722 Financial expenses 2,320 4,672 5,766 4,629 3,979 4,480 4,758 5,236 YoY 37.9% 101.4% 23.4% -19.7% -14.0% 12.6% 6.2% 10.0% Net operating revenue 33,769 50,051 45,209 49,642 41,852 49,155 47,417 47,990 YoY 16.9% 48.2% -9.7% 9.8% -15.7% 17.4% -3.5% 1.2% SG&A expenses 30,359 34,981 37,143 41,395 40,578 39,853 44,690 42,835 YoY 16.5% 15.2% 6.2% 11.4% -2.0% -1.8% 12.1% -4.2% SG&A as % of net operating revenue 89.9% 69.9% 82.2% 83.4% 97.0% 81.1% 94.2% 89.3% Operat ing profit equivalent 3,410 15,069 8,066 8,247 1,274 9,302 2,727 5,155 YoY 20.6% 341.9% -46.5% 2.2% -84.6% 630.1% -70.7% 89.0% OP equivalent as % of net operating revenue 10.1% 30.1% 17.8% 16.6% 3.0% 18.9% 5.8% 10.7% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

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SG&A expense breakdown

(JPYmn) FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS SG&A expenses 30,359 34,981 37,143 41,395 40,578 39,853 44,690 42,835 YoY 16.5% 15.2% 6.2% 11.4% -2.0% -1.8% 12.1% -4.2% T rading-relat ed 10,223 12,235 13,236 13,862 11,281 11,963 12,051 11,975 YoY 16.3% 19.7% 8.2% 4.7% -18.6% 6.0% 0.7% -0.6% Commissions paid 3,819 4,712 5,151 5,312 4,114 4,125 4,609 4,780 Stock exchange and association fees 860 1,435 1,251 1,154 808 897 765 779 Telecom, transportation, and information 3,518 3,821 4,074 4,385 3,675 3,535 3,686 3,443 Advertising expenses 1,958 2,114 2,596 2,848 2,567 3,159 2,687 2,684 Others 68 154 163 162 117 247 305 288 Personnel 8,503 9,613 9,538 10,651 10,393 10,854 13,111 13,413 YoY 38.0% 13.1% -0.8% 11.7% -2.4% 4.4% 20.8% 2.3% Real estate-related 1,833 1,934 2,321 2,497 2,855 3,898 5,058 4,228 YoY 2.5% 5.5% 20.0% 7.6% 14.3% 36.5% 29.8% -16.4% Real estate 994 804 835 805 931 1,094 1,235 339 Furniture and fixtures 839 1,129 1,487 1,692 1,923 2,804 3,824 3,889 Office and supplies 4,752 5,404 5,396 5,935 5,737 2,727 2,986 2,444 YoY -2.6% 13.7% -0.1% 10.0% -3.3% -52.5% 9.5% -18.2% Outsourcing 4,699 5,330 5,340 5,865 5,679 2,646 2,923 2,367 Office supplies 53 75 56 70 57 81 63 77 Depreciat ion 3,116 3,441 3,942 4,911 7,094 8,117 8,392 8,122 YoY 29.5% 10.4% 14.6% 24.6% 44.5% 14.4% 3.4% -3.2% Taxes and dues 257 359 341 504 652 516 621 693 Other 1,676 1,996 2,369 3,035 2,566 1,777 2,470 1,959 V ariable cost s 4,529 5,702 5,864 6,003 4,703 4,727 4,913 4,891 Variable cost ratio (% of commissions received) 22.2% 17.0% 19.5% 18.7% 17.8% 16.2% 19.1% 19.3% Variable cost ratio (% of net operating revenue) 13.4% 11.4% 13.0% 12.1% 11.2% 9.6% 10.4% 10.2% Fixed cost s 25,831 29,280 31,280 35,393 35,876 35,126 39,778 37,945 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

Segment earnings

FY03/19 FY03/20 (JPYmn) Japan US AP Crypto Asset Investment Japan US AP Crypto Asset Investment Operating revenue 27,729 22,798 829 2,116 414 26,393 23,645 887 3,815 149 YoY -11.1% 14.0% -11.7% - -85.1% -4.8% 3.7% 7.0% 80.3% -64.0% Commissions received 13,301 12,014 406 186 - 12,615 12,270 454 288 - YoY -21.6% 1.3% -27.1% - - -5.2% 2.1% 11.8% 54.8% - Brokerage 10,650 8,573 404 3 - 10,295 8,837 451 50 - YoY -24.4% 6.0% -27.1% - - -3.3% 3.1% 11.6% - - Equity and ETF 10,339 2,033 404 - - 9,926 1,895 451 - - Futures and options 311 6,540 - - - 368 6,942 - - - Cryptocurrency - - - 3 - - 2 - 50 - Underw rit ing and dist ribut ion 70 - - - - 104 - - - - Subscript ion and dist ribut ion 355 - - - - 175 - - - - Ot her commissions 2,226 3,441 - 183 - 2,040 3,430 2 238 - YoY -1.3% -8.7% - - - -8.4% -0.3% - 30.1% - FX fees (OTC retail FX) 69 - - - - 16 - - - - Administrative and transfer fees for margin trading 343 - - - - 310 - - - - Agent fee for investment trust trading 1,677 - - - - 1,565 - - - - Other 136 3,441 2 183 - 149 3,430 2 238 - Net t rading income 4,535 - -3 1,929 - 5,030 - - 3,529 - YoY 17.3% - - - - 10.9% - - 82.9% - Financial income 9,808 9,221 301 - 414 8,651 9,965 280 - 149 YoY 1.7% 32.8% 32.6% - -85.1% -11.8% 8.1% -7.0% - -64.0% Other operating revenue 86 1,282 126 - - 95 999 153 - - Financial expenses 1,990 3,214 22 39 - 2,050 3,396 252 3 - Net operating revenue 25,739 19,338 808 2,077 414 24,341 19,887 634 3,812 149 YoY -11.3% 11.0% -13.2% - -85.1% -5.4% 2.8% -21.5% 83.5% -64.0% SG&A expenses 23,013 17,250 883 4,766 23 21,671 17,877 898 3,502 54 YoY -1.7% 4.6% -4.2% - 53.3% -5.8% 3.6% 1.7% -26.5% 134.8% % of net operating revenue 89.4% 89.2% 109.3% 229.5% 5.6% 89.0% 89.9% 141.6% 91.9% 36.2% Operat ing profit equivalent 2,726 2,088 -75 -2,689 391 2,670 2,010 -263 310 94 YoY -51.4% 124.3% - - -85.8% -2.1% -3.7% - - -76.0% % of net operating revenue 10.6% 10.8% - - 94.4% 11.0% 10.1% - 8.1% 63.1% Other revenue 1,944 - 30 976 2 469 - 48 11 - Other expenses 3,423 111 4 18 9 889 247 15 28 - Pre-tax profit 1,247 1,978 -48 -1,732 382 2,250 1,764 -230 293 94 YoY -78.5% 603.9% - - -86.3% 80.4% -10.8% - - -75.4% % of net operating revenue 4.8% 10.2% - - 92.3% 9.2% 8.9% - 7.7% 63.1% Profit 1,131 1,439 -13 -1,826 326 1,379 1,418 -208 224 47 % of net operating revenue -70.3% 13.0% - - -81.4% 21.9% -1.5% - - -85.6% Profit attributable to owners of the parent 1,284 1,439 -13 -1,826 326 1,569 1,418 -208 224 47 YoY -67.6% 13.0% - - -81.4% 22.2% -1.5% - - -85.6% % of net operating revenue 5.0% 7.4% - - 78.7% 6.4% 7.1% - 5.9% 31.5% 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.

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SG&A expense breakdown by segment

FY03/19 FY03/20 (JPYmn) Japan US AP Crypto Asset Investment Japan US AP Crypto Asset Investment SG&A expenses 23,013 17,250 883 4,766 23 21,671 17,877 898 3,502 54 YoY -1.7% 4.6% -4.2% - 53.3% -5.8% 3.6% 1.7% -26.5% 134.8% Trading-related expenses 5,135 6,126 268 709 5 5,107 6,098 273 781 10 YoY -11.3% 1.4% -19.3% - -54.5% -0.5% -0.5% 1.9% 10.2% 100.0% Commissions paid 1,414 3,129 43 213 2 1,454 3,385 55 166 2 Stock exchange and association fees 645 120 - - - 681 98 - - - Telecom, transportation, and information 1,731 1,482 96 377 - 1,745 1,268 104 327 - Advertising expenses 1,212 1,264 124 84 2 1,115 1,200 111 263 4 Other 133 131 6 35 1 112 146 2 23 4 Personnel 4,046 6,944 391 1,726 5 4,511 7,216 400 1,286 28 YoY 0.4% 7.3% 9.5% - 400.0% 11.5% 3.9% 2.3% -25.5% 460.0% Occupancy and rental 4,361 1,085 68 281 - 3,728 935 17 36 - YoY 21.9% 7.2% 3.0% - - -14.5% -13.8% -75.0% -87.2% - Occupancy 538 353 62 281 - 190 112 13 36 - Furniture and fixtures 3,823 732 5 - - 3,538 823 5 - - Office and supplies 2,006 22 46 911 1 1,978 29 50 380 6 YoY -24.8% -24.1% 43.8% - - -1.4% 31.8% 8.7% -58.3% 500.0% Outsourcing 1,968 - 44 911 1 1,933 - 49 380 6 Supplies 38 22 2 - - 45 29 2 - - Depreciat ion 6,094 2,095 72 132 - 5,008 2,506 119 490 - YoY 1.0% 4.5% -10.0% - - -17.8% 19.6% 65.3% 271.2% - Taxes and dues 553 28 - 38 2 593 55 - 41 6 Other 819 950 39 968 11 744 1,038 37 490 4 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.

Breakdown of net operating revenue by region and by business Breakdown of SG&A expenses by region and expense category

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 net 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.)

Earnings 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.

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The company’s income statement shows pre-tax profit, (after-tax) 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 ▷ 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. (After-tax) 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 earnings. Earnings are also affected significantly by gains/losses in the Crypto Asset segment.

In FY03/20, the Japan segment accounted for 49.9% of net operating revenue (53.2% in FY03/19), the US segment 40.7% ▷ (40.0%), the Asia-Pacific segment 1.3% (1.7%), the Crypto Asset segment 7.8% (4.3%), and the Investment segment 0.3% (0.9%). In FY03/20, the Japan segment accounted for 53.9% of pre-tax profit (versus 68.3% in FY03/19), the US segment 42.3% (versus ▷ 108.3% in FY03/19), the Crypto Asset segment 7.0% (versus loss of JPY1.7bn in FY03/19), and the Investment segment 2.3% (versus 20.9% in FY03/19). In FY03/20 the Asia-Pacific segment reported a loss of JPY230mn (versus a loss of JPY48mn in FY03/19). (Note: Percentage figures calculated relative to simple sum of profits and losses at all segment.)

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Japan segment

Monex, Inc. is the core of the Japan segment. Prior to 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 (which was merged with Monex, Inc. in February 2015 via an absorption-type merger). 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 FY03/20 (JPYmn) Operating revenue 24,151 38,311 32,678 34,178 28,775 31,205 27,729 26,393 YoY 12.0% 58.6% -14.7% 4.6% -15.8% 8.4% -11.1% -4.8% Commissions received 12,980 23,940 19,034 19,430 15,267 16,968 13,301 12,615 YoY 18.8% 84.4% -20.5% 2.1% -21.4% 11.1% -21.6% -5.2% Brokerage 10,298 20,549 15,773 16,033 12,547 14,082 10,650 10,295 YoY 24.2% 99.5% -23.2% 1.6% -21.7% 12.2% -24.4% -3.3% Equity and ETF 9,483 19,667 15,184 15,305 12,124 13,733 10,339 9,926 Futures and options 632 752 568 727 421 349 311 368 Cryptocurrency ------Underw rit ing and dist ribut ion 47 120 99 153 136 172 70 104 Subscript ion and dist ribut ion 494 917 709 791 443 459 355 175 Ot her commissions 2,141 2,353 2,451 2,453 2,142 2,255 2,226 2,040 YoY 0 0.9% 9.9% 4.2% 0.1% -12.7% 5.3% -1.3% -8.4% FX fees (OTC retail FX) 72 147 114 117 116 79 69 16 Administrative and transfer fees for margin trading - - - 202 367 355 343 310 Agent fee for investment trust trading 1,273 1,518 1,702 1,737 1,539 1,692 1,677 1,565 Other 795 688 636 395 120 129 136 149 Net t rading income 5,170 5,747 4,831 5,675 4,498 3,865 4,535 5,030 YoY 0 1.3% 11.2% -15.9% 17.5% -20.7% -14.1% 17.3% 10.9% Financial income 5,878 8,486 8,670 8,860 8,803 9,640 9,808 8,651 YoY 8.8% 44.4% 2.2% 2.2% -0.6% 9.5% 1.7% -11.8% Other operating revenue 122 139 144 214 207 732 86 95 Financial expenses 878 1,851 2,269 2,355 2,083 2,177 1,990 2,050 Net operating revenue 23,273 36,459 30,410 31,823 26,693 29,028 25,739 24,341 YoY 13.1% 56.7% -16.6% 4.6% -16.1% 8.7% -11.3% -5.4% SG&A expenses 16,509 19,173 20,004 23,320 25,051 23,420 23,013 21,671 YoY -1.4% 16.1% 4.3% 16.6% 7.4% -6.5% -1.7% -5.8% % of net operating revenue 70.9% 52.6% 65.8% 73.3% 93.8% 80.7% 89.4% 89.0% Operat ing profit equivalent 6,763 17,287 10,406 8,502 1,643 5,608 2,726 2,670 YoY 76.1% 155.6% -39.8% -18.3% -80.7% 241.3% -51.4% -2.1% % of net operating revenue 29.1% 47.4% 34.2% 26.7% 6.2% 19.3% 10.6% 11.0% Other revenue 6,640 2,454 577 3,077 5,470 847 1,944 469 Other expenses 515 245 486 5,691 5,345 656 3,423 889 Pre-tax profit 12,888 19,497 10,498 5,887 1,768 5,799 1,247 2,250 YoY 253.5% 51.3% -46.2% -43.9% -70.0% 228.0% -78.5% 80.4% % of net operating revenue 55.4% 53.5% 34.5% 18.5% 6.6% 20.0% 4.8% 9.2% Profit 8,501 12,022 6,755 3,854 866 3,807 1,131 1,379 % of net operating revenue 395.1% 41.4% -43.8% -42.9% -77.5% 339.6% -70.3% 21.9% Profit attributable to owners of the parent 8,478 12,020 6,755 3,892 1,004 3,958 1,284 1,569 YoY 413.2% 41.8% -43.8% -42.4% -74.2% 294.2% -67.6% 22.2% % of net operating revenue 36.4% 33.0% 22.2% 12.2% 3.8% 13.6% 5.0% 6.4% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

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Income statement of Monex, Inc.

FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 (JPYmn) Operating revenue 22,894 37,513 32,930 35,078 29,630 32,454 29,014 27,987 YoY 13.8% 63.9% -12.2% 6.5% -15.5% 9.5% -10.6% -3.5% Commissions received 12,719 23,913 19,041 19,478 15,379 17,087 13,369 12,721 YoY 21.1% 88.0% -20.4% 2.3% -21.0% 11.1% -21.8% -4.8% % of net operating revenue 61.5% 69.0% 63.9% 61.1% 58.0% 58.1% 51.3% 51.5% Brokerage 10,349 20,655 15,889 16,149 12,683 14,238 10,778 10,458 YoY 24.0% 99.6% -23.1% 1.6% -21.5% 12.3% -24.3% -3.0% Equity and ETF 9,535 19,772 15,300 15,421 12,261 13,889 10,467 10,090 Futures and options 631 751 567 727 422 348 310 367 Underwriting and distribution 47 120 99 152 136 171 69 104 Subscription and distribution 493 917 707 791 442 458 355 175 Other commissions 1,828 2,220 2,344 2,384 2,117 2,218 2,165 1,982 YoY 11.3% 21.4% 5.6% 1.7% -11.2% 4.8% -2.4% -8.5% Net trading income 3,122 4,035 3,797 5,675 4,499 3,862 4,530 5,028 YoY 22.0% 29.2% -5.9% 49.5% -20.7% -14.2% 17.3% 11.0% % of net operating revenue 15.1% 11.6% 12.7% 17.8% 17.0% 13.1% 17.4% 20.3% Financial income 6,896 9,272 9,946 9,733 9,558 10,780 11,018 10,134 YoY 0.0% 34.5% 7.3% -2.1% -1.8% 12.8% 2.2% -8.0% % of net operating revenue 33.3% 26.8% 33.4% 30.5% 36.0% 36.7% 42.3% 41.0% Other operating revenue 156 292 145 190 192 723 96 103 Financial expenses 2,215 2,872 3,114 3,191 3,097 3,060 2,969 3,279 Net operating revenue 20,678 34,640 29,816 31,886 26,532 29,394 26,045 24,708 YoY 16.8% 67.5% -13.9% 6.9% -16.8% 10.8% -11.4% -5.1% SG&A expenses 15,801 20,367 21,088 24,428 25,738 24,024 23,282 22,028 YoY 0.8% 28.9% 3.5% 15.8% 5.4% -6.7% -3.1% -5.4% % of net operating revenue 76.4% 58.8% 70.7% 76.6% 97.0% 81.7% 89.4% 89.2% Operating profit 4,877 14,273 8,727 7,457 794 5,369 2,762 2,680 YoY 141.3% 192.7% -38.9% -14.6% -89.4% 576.2% -48.6% -3.0% % of net operating revenue 23.6% 41.2% 29.3% 23.4% 3.0% 18.3% 10.6% 10.8% Recurring profit 4,984 14,333 8,842 7,505 809 5,449 2,796 2,659 YoY 134.2% 187.6% -38.3% -15.1% -89.2% 573.5% -48.7% -4.9% Extraordinary gains 5,252 - - - 1,909 61 36 - Extraordinary losses 159 549 458 2,599 1,240 81 1,869 237 Pre-tax profit 10,007 13,784 8,384 4,905 1,478 5,429 964 2,422 YoY 423.7% 37.7% -39.2% -41.5% -69.9% 267.3% -82.2% 151.2% 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 FY03/20 (JPYmn) Operating revenue 1,257 798 -252 -900 -855 -1,249 -1,285 -1,594 Commissions received 261 27 -7 -48 -112 -119 -68 -107 Net t rading income 2,048 1,712 1,034 - -1 3 5 2 Financial income -1,018 -786 -1,276 -873 -755 -1,140 -1,210 -1,482 Other operating income -34 -153 -1 24 15 9 -10 -7 Financial expenses -1,337 -1,021 -845 -836 -1,014 -883 -979 -1,229 Net operating revenue 2,595 1,819 594 -63 161 -366 -306 -366 SG&A expenses 708 -1,194 -1,084 -1,108 -687 -604 -269 -357 Operat ing profit equivalent 1,886 3,014 1,679 1,045 849 239 -36 -9 Pre-tax profit 2,881 5,713 2,114 982 290 370 283 -171 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 (51.8% share in FY03/20), trading income (20.7%), net financial income (27.1%), and other operating revenue (0.4%).

Commissions (51.8% of Japan segment’s net operating revenue in FY03/20) Commissions break down into brokerage commissions (81.6% of total commissions of Japan segment in FY03/20), fees for securities underwriting and offering (0.8%), handling fees for invitation for subscription and offering (1.4%), and other fees and commissions (16.2%).

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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 FY03/20, the equity trading value at Monex, Inc. was JPY13.5tn (JPY14.2tn in FY03/19) and the average brokerage commission rate was 0.073% (0.073%), yielding a brokerage commission income on stocks and ETF trading of JPY9.9bn (JPY10.3bn).

Trends in equity trading value and brokerage commission rate

FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 Trading value on TSE and NSE (JPYtn) 735 1,414 1,337 1,634 1,417 1,645 1,574 1,437 YoY 16.5% 92.4% -5.4% 22.3% -13.3% 16.1% -4.3% -8.7% Individuals trading value on TSE and NSE (JPYtn) 155 385 314 331 266 317 274 252 YoY 38.5% 148.0% -18.5% 5.6% -19.8% 19.4% -13.5% -8.2% Individuals trading value as % of total 21.1% 27.2% 23.5% 20.3% 18.8% 19.3% 17.4% 17.5% Monex equity trading value (JPYtn) 11.0 23.9 17.1 17.1 13.3 16.8 14.2 13.5 YoY 117.1% -28.3% -0.2% -21.9% 25.9% -15.5% -4.4% Monex as % of individuals trading value on TSE and NSE 7.1% 6.2% 5.5% 5.1% 5.0% 5.3% 5.2% 5.4% Brokerage commissions for equity and ETF in Japan (JPYmn) 9,483 19,667 15,184 15,305 12,124 13,733 10,339 9,926 YoY 30.3% 107.4% -22.8% 0.8% -20.8% 13.3% -24.7% -4.0% 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 FY03/20, equity trading value on the Tokyo and Nagoya stock exchanges was JPY1,437tn (JPY1,574tn in FY03/19). Of this, retail investors accounted for 17.5% (versus 17.4% in FY03/19). With Monex handling equity trades by retail investors worth some JPY13.5tn (versus JPY14.2tn in FY03/19), its market share on this metric came to 5.4% (versus 5.2% in FY03/19).

The level of equity trading on the Tokyo and Nagoya stock exchanges is affected by the economy, interest rates, and trends in stock market prices. 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.

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).

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%.

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Trading income (20.7% of Japan segment’s net operating revenue in FY03/20) 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 FY03/20, Monex, Inc. handled forex trades worth some JPY71.7tn (+80.6% YoY) and, with an effective profit margin of 0.005%, generated forex income (including forex trading income, swap income, and commissions) of JPY3.8bn (+5.2% YoY).

Forex trading income indicators

FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 Trading value on FX (JPYtn) 2,208 4,196 4,698 5,525 4,939 4,179 3,740 4,266 YoY 27.5% 90.0% 12.0% 17.6% -10.6% -15.4% -10.5% 14.1% Monex FX trading value (JPYtn) 26.3 36.3 35.8 39.8 34.9 31.1 39.7 71.7 YoY -0.5% 38.2% -1.5% 11.4% -12.4% -10.9% 27.7% 80.6% Monex as % of total 1.2% 0.9% 0.8% 0.7% 0.7% 0.7% 1.1% 1.7% Net t rading income (excl. sw ap income; JPY mn) 4,159 4,519 3,627 4,528 3,342 2,941 3,595 3,782 YoY -6.5% 8.7% -19.7% 24.8% -26.2% -12.0% 22.2% 5.2% Margin 0.016% 0.012% 0.010% 0.011% 0.010% 0.009% 0.009% 0.005% 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 0.6pp YoY to 1.7% in FY03/20.

Net financial income (27.1% of Japan segment’s net operating revenue in FY03/20) 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 investing of customer (cash) assets in custody occurs mainly at 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.

Net financial income and related indicators

(JPYmn) FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 Monex, Inc. margin trading balance (year-end; JPYbn) 170.2 189.9 197.9 163.5 166.0 205.3 156.9 126.8 Monex, Inc. margin trading balance (average; JPYbn) 118.9 194.7 183.5 186.9 152.0 177.9 179.3 154.3 Financial income: Japan 5,878 8,486 8,670 8,860 8,803 9,640 9,808 8,652 Financial income: Monex, Inc. 6,896 9,272 9,946 9,733 9,558 10,780 11,018 10,134 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 2,050 Financial expenses: Monex, Inc. 2,215 2,872 3,114 3,191 3,097 3,060 2,969 3,279 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 6,602 Net financial income: Monex, Inc. 4,681 6,400 6,832 6,542 6,461 7,720 8,049 6,855 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

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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 FY03/19, the average margin trading balance (long + short positions) was JPY179.3bn, with long positions totaling JPY127.7bn and short positions totaling JPY29.2bn. Income from margin trading was JPY5.6bn and the net interest ratio was 3.1%.

It is 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 FY03/19, assuming that the ratio of long and short positions of 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 balance of margin trades outstanding, like equity trading value, fluctuates according to stock market movements. Investors have more scope for buying in a bull market, when the outstanding margin 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 1.10% for negotiable margin trades (short-term margin trading for shorting stocks, with settlement of margin loan required within 15 trading days).

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

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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 (23.6% of SG&A expenses in FY03/20), personnel expenses (20.8%), and system-related expenses (49.4%). System-related expenses break down into real estate-related (17.2%), office/administrative (9.1%), and depreciation (23.1%).

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.

SG&A expenses of Japan segment

(JPYmn) FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20

SG&A expenses 16,509 19,173 20,004 23,320 25,050 23,420 23,013 21,671 YoY -1.4% 16.1% 4.3% 16.6% 7.4% -6.5% -1.7% -5.8% T rading-relat ed 4,851 6,147 6,200 6,356 5,323 5,787 5,135 5,107 YoY 2.2% 26.7% 0.9% 2.5% -16.3% 8.7% -11.3% -0.5% Commissions paid 897 1,190 1,300 1,323 1,230 1,398 1,414 1,454 Stock exchange and association fees 735 1,238 962 928 694 797 645 681 Telecom, transportation, and information 2,195 2,427 2,293 2,134 1,780 1,668 1,731 1,744 Advertising expenses 957 1,139 1,489 1,812 1,506 1,784 1,212 1,115 Other 67 152 158 159 113 140 133 112 Personnel 3,515 3,680 3,525 4,047 4,206 4,028 4,046 4,511 YoY 11.1% 4.7% -4.2% 14.8% 3.9% -4.2% 0.4% 11.5% Real estate-related 1,455 1,562 2,029 2,672 3,141 3,578 4,361 3,728 YoY -8.5% 7.4% 29.9% 31.7% 17.6% 13.9% 21.9% -14.5% Real estate 634 409 406 404 499 659 538 190 Furniture and fixtures 821 1,154 1,623 2,268 2,641 2,919 3,823 3,538 Office and supplies 4,740 5,377 5,357 5,849 5,677 2,666 2,006 1,978 YoY -2.6% 13.4% -0.4% 9.2% -2.9% -53.0% -24.8% -1.4% Outsourcing 4,688 5,305 5,304 5,782 5,622 2,617 1,968 1,933 Office supplies 52 72 53 67 55 49 38 45 Depreciat ion 1,270 1,531 1,985 3,032 5,077 6,033 6,094 5,008 YoY 7.5% 20.6% 29.7% 52.7% 67.4% 18.8% 1.0% -17.8% Taxes and dues 235 331 309 471 630 604 553 593 Other 443 544 597 893 997 725 819 744 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

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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 and FY03/20. 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.

Personnel expenses and employees of Japan segment

(JPYmn) FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 Personnel expenses 3,515 3,680 3,525 4,047 4,206 4,028 4,046 4,511 YoY 11.1% 4.7% -4.2% 14.8% 3.9% -4.2% 0.4% 11.5% % of net operating revenue 15.1% 10.1% 11.6% 12.7% 15.8% 13.9% 15.7% 18.5% Number of employees 313 305 323 355 328 322 368 397 YoY 2.6% -2.6% 5.9% 9.9% -7.6% -1.8% 14.3% 7.9% Personnel expenses per employee 11.4 11.9 11.2 11.9 12.3 12.4 11.7 11.8 YoY 8.2% 4.7% -5.7% 6.3% 3.2% 0.6% -5.4% 0.6% Operating revenue per employee 78.2 124.0 104.1 100.8 84.3 96.0 80.4 69.0 YoY 9.1% 58.6% -16.1% -3.1% -16.4% 14.0% -16.3% -14.1% 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)

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 FY03/20 System-related expenses 7,465 8,470 9,371 11,553 13,895 12,277 12,461 10,714 YoY -2.3% 13.5% 10.6% 23.3% 20.3% -11.6% 1.5% -14.0% Real estate-related 1,455 1,562 2,029 2,672 3,141 3,578 4,361 3,728 YoY -8.5% 7.4% 29.9% 31.7% 17.6% 13.9% 21.9% -14.5% Office and supplies 4,740 5,377 5,357 5,849 5,677 2,666 2,006 1,978 YoY -2.6% 13.4% -0.4% 9.2% -2.9% -53.0% -24.8% -1.4% Depreciat ion 1,270 1,531 1,985 3,032 5,077 6,033 6,094 5,008 YoY 7.5% 20.6% 29.7% 52.7% 67.4% 18.8% 1.0% -17.8% 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 (mainly for system management/maintenance) Business outsourcing expenses are mainly related to system management and maintenance.

Depreciation (mainly software) 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

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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. The company recorded an impairment charge of JPY1.8bn in FY03/19 to reflect the downward revision of the carrying value of its TradeStation platform for Japanese equities trading following its reassessment of the future earnings power of this Japanese equities trading tool. With the writedown of this fixed asset in FY03/19, the company was able to reduce the depreciation charges assessed in connection with its IT systems in FY03/20.

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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 FY03/20 (JPYmn) Operating revenue 11,726 16,062 18,146 22,912 18,684 20,002 22,798 23,645 YoY 35.7% 37.0% 13.0% 26.3% -18.5% 7.1% 14.0% 3.7% Commissions received 7,173 9,298 10,791 12,406 10,858 11,858 12,014 12,270 YoY 23.5% 29.6% 16.1% 15.0% -12.5% 9.2% 1.3% 2.1% Brokerage 5,165 6,720 7,786 8,965 7,371 8,091 8,573 8,837 YoY 15.6% 30.1% 15.9% 15.1% -17.8% 9.8% 6.0% 3.1% Equity and ETF 1,608 2,043 2,136 2,168 1,845 1,874 2,033 1,895 Futures and options 3,557 4,676 5,648 6,794 5,526 6,218 6,540 6,942 OSE FX ------2 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 3,430 YoY 49.7% 28.3% 16.6% 14.5% 1.4% 8.0% -8.7% -0.3% 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 3,430 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 9,965 YoY 67.9% 72.9% 28.2% 7.4% -4.3% 26.5% 32.8% 8.1% Other operating revenue 340 331 530 1,381 1,242 1,141 1,282 999 Financial expenses 1,593 2,818 3,496 2,269 2,115 2,535 3,214 3,396 Net operating revenue 10,134 13,245 14,584 18,541 15,616 17,417 19,338 19,887 YoY 27.5% 30.7% 10.1% 27.1% -15.8% 11.5% 11.0% 2.8% SG&A expenses 13,423 15,291 16,701 18,392 15,858 16,487 17,250 17,877 YoY 51.1% 13.9% 9.2% 10.1% -13.8% 4.0% 4.6% 3.6% % of operating revenue 132.5% 115.4% 114.5% 99.2% 101.5% 94.7% 89.2% 89.9% Operat ing profit equivalent -3,289 -2,047 -2,116 149 -242 931 2,088 2,010 YoY ------124.3% -3.7% % of operating revenue - - - 0.8% - 5.3% 10.8% 10.1% Other revenue 141 1,130 113 51 54 2 - - Other expenses 2,627 1,473 2,336 726 269 651 111 247 Pre-tax profit -5,774 -2,388 -4,339 -525 -457 281 1,978 1,763 YoY ------603.9% -10.9% % of net operating revenue - - - - - 1.6% 10.2% 8.9% Profit -4,488 -1,450 -3,174 -152 -497 1,274 1,439 1,418 YoY ------13.0% -1.5% Profit attributable to owners of the parent -4,488 -1,450 -3,174 -152 -497 1,274 1,439 1,418 YoY ------13.0% -1.5% % of net operating revenue - - - - - 7.3% 7.4% 7.1% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

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Income statement of the US segment (USD basis)

FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 (USD'000) Operating revenue 141,014 160,793 165,898 190,739 171,883 180,593 205,863 217,680 YoY 14.0% 3.2% 15.0% -9.9% 5.1% 14.0% 5.7% Commissions received 86,263 93,086 98,040 103,273 99,886 107,067 108,485 112,957 YoY 7.9% 5.3% 5.3% -3.3% 7.2% 1.3% 4.1% Brokerage 62,115 67,284 70,731 74,622 67,808 73,056 77,410 81,367 YoY 8.3% 5.1% 5.5% -9.1% 7.7% 6.0% 5.1% Equity and ETF 19,339 20,462 19,407 18,058 16,971 16,917 18,358 17,443 Futures and options 42,775 46,823 51,325 56,564 50,836 56,139 59,051 63,904 Ot her commissions 24,148 25,802 27,309 28,651 32,078 34,011 31,075 31,590 YoY 6.8% 5.8% 4.9% 12.0% 6.0% -8.6% 1.7% 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 91,736 YoY 44.1% 16.3% -1.6% 5.8% 24.1% 32.8% 10.2% Sales revenue - - 1,250 19,924 10,036 506 2,544 3,792 Other operating revenue 4,084 3,308 5,245 11,498 11,429 10,306 11,572 9,198 Financial expenses 19,153 28,213 31,760 18,885 19,459 22,892 29,025 31,262 Cost of revenue - - 1,148 17,500 8,765 439 2,216 3,340 Net operating revenue 121,861 132,580 132,990 154,353 143,661 157,260 174,621 183,081 YoY 8.8% 0.3% 16.1% -6.9% 9.5% 11.0% 4.8% SG&A expenses 161,415 153,070 151,753 153,108 145,885 148,858 155,763 164,580 YoY -5.2% -0.9% 0.9% -4.7% 2.0% 4.6% 5.7% Operat ing profit equivalent -39,554 -20,489 -18,763 1,246 -2,225 8,402 18,858 18,501 Yoy - - - - - 124.4% -1.9% Other revenue 1,412 11,317 - 425 506 21 1 11 Other expenses 31,297 14,740 20,802 6,043 2,485 5,882 1,001 2,278 Pre-tax profit -69,440 -23,910 -39,565 -4,372 -4,205 2,542 17,858 16,234 YoY - - - - - 602.5% -9.1% Profit -53,961 -14,517 -28,964 -1,263 -4,573 11,504 12,996 13,053 YoY - - - - - 13.0% 0.4% Profit attributable to owners of the parent -53,961 -14,517 -28,964 -1,263 -4,573 11,504 12,996 13,053 YoY - - - - - 13.0% 0.4% 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 comes from commissions (61.7% of net operating revenue in FY03/20), net financial income (33.0%), and other operating revenue (5.0%).

Commission income (61.7% share in FY03/20) Commission income includes brokerage commissions on equities, futures, and options trading (72.0% of total segment commission income in FY03/20), and other fees and commissions (28.0%).

Brokerage commission income from 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 FY03/20, the US segment reported DARTs of 96,760 (+22.5% YoY) over 252 trading days, with stock trades accounting for 33,041 (+25.6% YoY), option trades 11,682 (+16.8% YoY), and futures trade 52,037 (+21.9% YoY). Using company data for DARTs and commission income, Shared Research estimates that stock trades generated an average of $2.10 per trade in commissions while futures and option trades generated an average of $4.00 per trade in commissions.

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.

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In October 2019 TradeStation Securities introduced its new TS Go service, a commission-free trading service aimed at investors using on line and mobile platform. It followed this in November with the introduction of its new TS Select services, a commission- free trading services aimed at investors using desktop computers. While investors are required to switch their account from their current commission plan to the new plans (i.e., opt-in), Shared Research believes that the switch-over to the new commission- free plans is likely to bring down the average commission per trade at TradeStation Securities going forward.

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

Platform fees Customers are charged USD150 per month in platform fees if they do not trade at least once a month using the TradeStation tool.

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 rising since 2H FY03/17 along with the increase in the overall volume of trades handled.

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 (33.0% of net operating revenue of US segment in FY03/20) 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 USD1.0mn after US short-term rates dropped to under 1% in FY03/10, but has turned up since FY03/16 as US short-term rates started to rise, reaching JPY50mn in FY03/20.

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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

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 (34.1% of SG&A expenses in FY03/20), personnel expenses (40.4%), and system-related expenses (19.4%). System-related expenses break down into real-estate (5.2%), administrative (0.2%), and depreciation (14.0%). 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 FY03/20 (JPYmn) SG&A expenses 13,423 15,291 16,701 18,392 15,858 16,487 17,250 17,877 YoY 51.1% 13.9% 9.2% 10.1% -13.8% 4.0% 4.6% 3.6% T rading-relat ed 5,284 5,992 6,956 7,508 5,869 6,043 6,126 6,098 YoY 34.5% 13.4% 16.1% 7.9% -21.8% 3.0% 1.4% -0.5% Commissions paid 2,894 3,533 3,910 4,082 2,964 2,842 3,129 3,385 Stock exchange and association fees 125 195 288 227 113 101 120 98 Telecom, transportation, and information 1,271 1,324 1,698 2,164 1,801 1,773 1,482 1,268 Advertising expenses 992 941 1,060 1,035 990 1,231 1,264 1,200 Other - - - - - 97 131 146 Personnel 4,763 5,586 5,639 6,296 5,912 6,469 6,944 7,216 YoY 70.7% 17.3% 0.9% 11.7% -6.1% 9.4% 7.3% 3.9% Real estate-related 336 365 385 417 449 1,012 1,085 935 YoY 94.2% 8.6% 5.5% 8.3% 7.7% 125.4% 7.2% -13.8% Real estate 322 340 360 352 381 374 353 112 Furniture and fixtures 15 25 26 65 65 638 732 823 Office and supplies - - - - 1 29 22 29 YoY ------24.1% 31.8% Outsourcing - - - - 1 - - - Supplies - - - - - 29 22 29 Depreciat ion 1,773 1,818 1,861 1,790 1,939 2,004 2,095 2,506 YoY 52.6% 2.5% 2.4% -3.8% 8.3% 3.4% 4.5% 19.6% Taxes and dues 21 25 29 32 21 -88 28 55 Other 1,245 1,500 1,832 2,348 1,668 1,018 950 1,038 Source: Shared Research based on company data

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SG&A expenses of US segment (USD basis)

FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 (USD'000) SG&A expenses 161,415 153,070 151,753 153,108 145,885 148,858 155,763 164,580 YoY -5.2% -0.9% 0.9% -4.7% 2.0% 4.6% 5.7% T rading-relat ed 63,541 59,993 63,198 62,505 53,989 54,560 55,317 56,137 YoY -5.6% 5.3% -1.1% -13.6% 1.1% 1.4% 1.5% Commissions paid 34,807 35,369 35,517 33,986 27,275 25,657 28,253 31,169 Stock exchange and association fees 1,496 1,954 2,615 1,883 1,043 909 1,087 900 Telecom, transportation, and informa 15,294 13,256 15,426 18,015 16,565 16,008 13,384 11,669 Advertising expenses 11,942 9,412 9,633 8,616 9,102 11,115 11,415 11,049 Other 4 4 6 6 3 872 1,179 1,352 Personnel 57,267 55,935 51,229 52,415 54,387 58,404 62,699 66,435 YoY -2.3% -8.4% 2.3% 3.8% 7.4% 7.4% 6.0% Real estate-related 4,056 3,667 3,503 3,463 4,120 9,139 9,799 8,612 YoY -9.6% -4.5% -1.1% 19.0% 121.8% 7.2% -12.1% Real estate 3,881 3,402 3,264 2,925 3,514 3,380 3,191 1,026 Furniture and fixtures 176 266 240 539 606 5,761 6,609 7,586 Office and supplies 10 7 11 6 7 265 199 274 YoY -30.0% 57.1% -45.5% 16.7% 3685.7% -24.9% 37.7% Outsourcing 10 7 11 6 7 - - - Supplies - - - - - 265 199 274 Depreciat ion 21,314 18,202 16,908 14,907 17,838 18,093 18,916 23,062 YoY -14.6% -7.1% -11.8% 19.7% 1.4% 4.5% 21.9% Taxes and dues 260 254 255 266 201 -798 254 504 Other 14,963 15,009 16,648 19,543 15,346 9,195 8,581 9,554 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.

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 FY03/20, the US segment had 534 employees or about 50% more than the Japan segment (excluding employees at group headquarters), although net operating revenue was around 80% of the figure for the Japan segment.

Personnel expenses and employee count of the US segment

FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 Personnel (USD'000) 57,267 55,935 51,229 52,415 54,387 58,404 62,699 66,435 YoY - -2.3% -8.4% 2.3% 3.8% 7.4% 7.4% 6.0% Personnel expenses as % of operating revenue 40.6% 34.8% 30.9% 27.5% 31.6% 32.3% 30.5% 30.5% Number of employees 566 616 595 581 467 491 513 534 YoY 11.9% 8.8% -3.4% -2.4% -19.6% 5.1% 4.5% 4.1% Personnel expenses per employee (USD) 106,841 94,645 84,606 89,141 103,792 121,929 124,898 126,905 YoY - -11.4% -10.6% 5.4% 16.4% 17.5% 2.4% 1.6% Operating revenue per employee (USD'000) 263 272 274 324 328 377 410 416 YoY - 3.4% 0.7% 18.4% 1.1% 14.9% 8.8% 1.4% 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 FY03/20 were JPY3.5bn, about a quarter of such expenses in Japan.

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System-related expenses of US segment

(USD'000) FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 System-related expenses 25,380 21,876 20,422 18,376 21,965 27,497 28,914 31,948 YoY - -13.8% -6.6% -10.0% 19.5% 25.2% 5.2% 10.5% Real estate-related 4,056 3,667 3,503 3,463 4,120 9,139 9,799 8,612 YoY - -9.6% -4.5% -1.1% 19.0% 121.8% 7.2% -12.1% Office and supplies 10 7 11 6 7 265 199 274 YoY - -30.0% 57.1% -45.5% 16.7% - -24.9% 37.7% Depreciat ion 21,314 18,202 16,908 14,907 17,838 18,093 18,916 23,062 YoY - -14.6% -7.1% -11.8% 19.7% 1.4% 4.5% 21.9% Source: Shared Research based on company data

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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 online broker reviews conducted by US online financial medium StockBrokers.com has ranked TradeStation at the top of the Best Platform for Active Traders category for ten straight years and has ranked it at the top of its Best Platform Technology category for eight straight years.

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: While Monex carries the distinction of developing its own systems in-house, that distinction comes at ◤ a cost, and those systems-related costs (including real estate-related expenses, administrative expenses, depreciation) has made the SG&A expense ratio of Monex, Inc. the highest among Japan’s five largest online brokers. Not only are system- related costs relative to net operating revenue higher at Monex, Inc. than at competitors, its systems-related costs are also higher than at competitors when calculated on a per-customer account basis or a per-trade basis. (See 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 from the late-2000s well into the 2010s..

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, 2019). In FY03/19, the average trading frequency of Monex, Inc. customers (calculated as equity trading value / assets under custody) was 3.5x and equity trading value per customer account (JPY7.4mn) 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 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 FY03/20 amounting to JPY3,731, the lowest among online rivals.

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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.

In keeping with its desire to move to an asset management-based business model over the medium to long term, the company established the Monex Activist Fund in June 2020. With the fund being managed by the group’s asset management company, (Monex Asset Management, Inc.) and also advised by the group’s investment advisory company (Japan Catalyst, Inc.), Shared Research sees contributions to group revenues and earnings increasing going forward.

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.

Monex Asset Management, Inc. (100%) Asset management company originally founded as a joint venture between Monex Group, Credit Saison (TSE1: 8253), and Vanguard Group Inc. in August 2015 under the name Monex-Saison-Vanguard Investment Partners. After upping its stake and making it a wholly owned subsidiary in 2020, the Monex Group changed the name to Monex Asset Management, Inc.

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Japan Catalyst, Inc. Investment advisory company founded in September 2019 for the purpose of enhancing long-term investment returns by investing in listed Japanese companies and submitting proposal and engaging them in productive dialogues. Serving as the investment advisor for the Monex Activist Fund.

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Market and value chain Trends in equity trading and margin trades outstanding Trends in domestic equity trading (in value terms), equity trading by retail investors, and the balance of margin trading outstanding 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) Equity trading value 200 2,000 TOPIX (right axis) 180 1,800

160 1,600

140 1,400

120 1,200

100 1,000

80 800

60 600

40 400

20 200

0 0 Apr 2010 Apr 2011 Apr 2012 Apr 2013 Apr 2014 Apr 2015 Apr 2016 Apr 2017 Apr 2018 Apr 2019 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 2010 through March 2020, the correlation coefficient between the Tokyo Stock Price Index (TOPIX) and the equity trading value at Tokyo and Nagoya stock exchanges was 0.81, indicating a strong correlation.

Equity trading by retail investors and stock price indices

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

(JPYtn) Equity trading value of retail investors 70.0 2,000 TOPIX (right axis) 1,800 60.0 1,600

50.0 1,400

1,200 40.0 1,000 30.0 800

20.0 600 400 10.0 200

0.0 0 Apr 2010 Apr 2011 Apr 2012 Apr 2013 Apr 2014 Apr 2015 Apr 2016 Apr 2017 Apr 2018 Apr 2019 Source: Shared Research based on Japan Exchange Group Monthly Statistics Report

In March 2019, foreign investors accounted for 64.8% of equity trading value, followed by domestic retail investors at 14.7%, and domestic companies at 6.3%.

Equity trading by retail investors also moves closely in line with stock price indices, but tends to settle down once the indices exceed a certain mark. Looking at the movements from April 2010 through March 2020, 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

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the same period, the correlation coefficient between TOPIX and equity trading by retail investors at Tokyo and Nagoya stock exchanges was 0.62, indicating a weaker correlation compared with overall equity trading.

Margin trades outstanding and stock price indices

Margin trade balances and TOPIX

(JPYtn) Margin trading balance 5.0 2,000 TOPIX (right axis) 4.5 1,800

4.0 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 2010 Apr 2011 Apr 2012 Apr 2013 Apr 2014 Apr 2015 Apr 2016 Apr 2017 Apr 2018 Apr 2019 Source: Shared Research based on Japan Exchange Group Monthly Statistics Report

The balance of margin trades outstanding is also closely linked with stock price indices. From April 2010 through March 2020, the correlation coefficient between TOPIX and margin trading balance at Tokyo and Nagoya stock exchanges was 0.86, 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 the salespeople and sales offices required at brick-and-mortar rivals, they were able to limit personnel and other fixed costs and, along with the convenience of trading over the internet, were able to 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 au Kabucom 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 au Kabucom Securities. In FY03/05, these five online brokers accounted for around 60% of the overall equity trading value of retail investors.

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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 au Kabucom 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 au Kabucom 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 au Kabucom 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% au 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% au 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).

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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 au Kabucom Securities. Note: The six online brokerages comprise SBI Securities, Rakuten Securities, Matsui Securities, Monex, Inc., au Kabucom 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).

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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 au Kabucom 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% au 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. au Kabucom Securities’ aggressively lowered commissions starting in FY03/11 and was able to increase its market share in FY03/11 and FY03/12.

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% au kabu.com Securities 5.2% 5.9% 5.8% 5.8% 6.0% 6.7% 7.0% Source: Shared Research based on each company’s data

FY03/13 and later Revenues and earnings in the online brokerage industry hit bottom in FY03/12 followed by large gains the next two years (FY03/13 and FY03/14) as individual investors flocked back into the Japanese stock market as it turned up and entered a new bull- market phase in response to the election of Shinzo Abe to a second term as prime minister. Results have been uneven since then, however, with online brokers making no real progress as revenues rise in some years only to fall the next.

Combined financial results for Big Five online brokers

(JPYmn) FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 Operating revenue 123,137 219,467 213,892 238,343 217,976 261,306 259,558 254,883 YoY 12.9% 78.2% -2.5% 11.4% -8.5% 19.9% -0.7% -1.8% Commissions 73,156 132,143 115,710 122,258 103,689 123,010 111,602 108,395 YoY 16.4% 80.6% -12.4% 5.7% -15.2% 18.6% -9.3% -2.9% Net interest income 37,896 68,428 77,735 82,466 77,539 101,310 97,228 85,084 YoY 6.9% 80.6% 13.6% 6.1% -6.0% 30.7% -4.0% -12.5% Net operating revenue 114,477 207,883 199,888 221,940 199,859 240,146 241,349 232,602 YoY 15.1% 81.6% -3.8% 11.0% -9.9% 20.2% 0.5% -3.6% SG&A expenses 77,128 99,570 103,853 117,754 121,603 133,863 145,092 164,616 YoY 1.9% 29.1% 4.3% 13.4% 3.3% 10.1% 8.4% 13.5% Operating profit 37,347 108,313 96,032 104,185 78,253 106,282 96,253 67,985 YoY 57.3% 190.0% -11.3% 8.5% -24.9% 35.8% -9.4% -29.4% Source: Shared Research, based on each company’s data Note: Rakuten Securities moved to consolidated accounting in FY03/16; for Monex Group, results reflect figures for Monex, Inc. only

Six major online brokerages strengthen hold over market Alongside a continuing market recovery since FY03/13, the proportion of retail trades conducted online has risen, and during FY03/20, the six major online brokerages together handled more than 89% of overall retail equity trades (85% in FY03/19).

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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 FY03/20 Trading value (retail investors) 112 155 385 314 331 266 317 274 252 YoY -14.1% 38.5% 148.0% -18.5% 5.6% -19.8% 19.4% -13.5% -8.2% Trading value at five major online brokerages 78 109 279 235 247 204 243 219 213 YoY -14.9% 39.9% 156.8% -15.7% 5.1% -17.2% 19.1% -10.1% -2.8% 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% 84.4% Trading value at six major online brokerages 86 121 310 261 274 226 266 233 224 YoY -12.4% 39.4% 157.2% -15.7% 4.7% -17.5% 17.5% -12.1% -4.1% 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% 88.8% 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 au Kabucom Securities. Note: The six firms referred to above comprise SBI Securities, Rakuten Securities, Matsui Securities, Monex, Inc., au Kabucom Securities, and GMO CLICK Securities.

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 au Kabucom Securities also lowered their commissions. Since then, brokerage commissions in general have either remained largely unchanged or have been slowly declining.

As of FY03/20, commission rates of major online brokers other than Monex and Matsui Securities were already down to 0.03%. But just when it looked like commission rates were about as low as they could go, in September 2019 major online brokers in the US began announcing one after the other that they were moving to commission-free trading models. This prompted online brokers in Japan to start offering commission-free trading on some transactions, followed by the expansion of the range of transactions qualifying for commission-free trades. Japanese online brokers have not gone as far as their US counterparts, though, owing to differences in the competitive landscape and earnings/costs structures. Indeed, the moves by Japanese online brokers toward commission-free trading thus far have been limited to areas that will have only a limited impact on their overall revenues and earnings, such as the move by au Kabucom Securities to eliminate commissions on margin trades while at the same time raising the interest rates charged on margin trade balance, or the move by Matsui Securities to lower the minimum principal value of trades needed to qualify for commission-free trading.

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 au Kabucom 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 FY03/20 SBI Securities 0.04% 0.03% 0.02% 0.03% 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% 0.03% Monex, Inc. 0.09% 0.09% 0.09% 0.09% 0.09% 0.10% 0.08% 0.08% 0.08% Mat sui Securit ies 0.13% 0.10% 0.06% 0.05% 0.05% 0.05% 0.05% 0.05% 0.05% au kabu.com Securities 0.07% 0.06% 0.04% 0.04% 0.03% 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 FY03/20 SBI Securities 32.9% 32.6% 33.8% 34.6% 34.9% 34.8% 35.1% 36.2% 36.6% Rakuten Securities 14.8% 14.8% 14.6% 14.5% 14.1% 15.2% 16.4% 19.2% 23.5% Monex, Inc. 7.3% 7.1% 6.2% 5.5% 5.1% 5.0% 5.3% 5.2% 5.4% Mat sui Securit ies 7.2% 8.2% 10.5% 11.7% 11.7% 13.1% 11.2% 10.4% 10.0% au kabu.com Securities 7.0% 7.2% 7.4% 8.6% 8.7% 8.9% 8.8% 8.9% 8.9% Source: Shared Research based on each company’s data

By FY03/20 the six major online brokerages were handling more than 89% of all equity trading by retail investors. 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 au Kabucom Securities and Matsui Securities have come down by more than 50%. As a result, the brokerage commission rate at SBI Securities, Rakuten Securities, and au Kabucom Securities is down to 0.03% while the rate for Matsui Securities has come down to 0.05%. With little room left

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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.

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.

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.

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Earnings at five major online brokerages

FY03/20 Monex SBI Rakuten Matsui au kabu.com (JPYmn) Inc. Securities Securities Securities Securities Operating revenue 27,987 124,466 58,931 24,150 19,349 Net operating revenue 24,708 113,418 56,501 22,345 15,630 Commissions 12,721 53,028 21,612 13,490 7,544 % of net operating revenue 51.5% 46.8% 38.3% 60.4% 48.3% Brokerage commissions 10,458 31,851 15,830 12,850 5,872 % of net operating revenue 42.3% 28.1% 28.0% 57.5% 37.6% Fees for offering, secondary dist ribut ion, and solicit at ion for 104 2,019 43 10 - selling and ot hers for professional invest ors % of net operating revenue 0.4% 1.8% 0.1% 0.0% 0.0% Fees for offering, secondary dist ribut ion, and solicit at ion for 175 2,044 1,303 36 112 selling and ot hers for professional invest ors % of net operating revenue 0.7% 1.8% 2.3% 0.2% 0.7% Other commissions 1,982 17,111 4,433 593 1,559 % of net operating revenue 8.0% 15.1% 7.8% 2.7% 10.0% Net gain (loss) on trading 5,028 35,431 16,833 1,120 1,114 % of net operating revenue 20.3% 31.2% 29.8% 5.0% 7.1% Net interest income 6,855 28,667 16,813 7,734 6,807 % of net operating revenue 27.7% 25.3% 29.8% 34.6% 43.6% Interest income 10,134 35,946 19,244 9,539 10,221 Interest expenses 3,279 7,279 2,431 1,805 3,414 SG&A expenses 22,028 71,292 44,644 13,436 13,216 % of net operating revenue 89.2% 62.9% 79.0% 60.1% 84.6% Trading related expenses - 17,011 20,831 4,566 5,021 % of net operating revenue - 15.0% 36.9% 20.4% 32.1% Personnel - 18,117 5,206 2,607 1,769 % of net operating revenue - 16.0% 9.2% 11.7% 11.3% System-related - 28,354 17,246 5,804 5,747 % of net operating revenue - 25.0% 30.5% 26.0% 36.8% Real estate - 7,426 1,800 1,134 2,970 % of net operating revenue - 6.5% 3.2% 5.1% 19.0% Office - 15,454 8,533 2,747 852 % of net operating revenue - 13.6% 15.1% 12.3% 5.5% Depreication - 5,474 6,913 1,923 1,925 % of net operating revenue - 4.8% 12.2% 8.6% 12.3% Other - 7,810 1,361 459 679 Operating profit 2,680 42,126 11,856 8,909 2,414 OP / Net operating revenue 10.8% 37.1% 21.0% 39.9% 15.4% Net assets 48,848 216,516 96,826 80,285 38,644 Source: Shared Research based on various company data Note: Monex, Inc. data (Japanese GAAP) used for Monex Figures for SBI Securities and Rakuten Securities reflect consolidated results. Figures for Rakuten Securities reflect results for the 12-month period comprised of Q2, Q3, and Q4 of FY12/19 and Q1 of FY12/20.

Five major online brokerages

Monex SBI Rakuten Matsui au kabu.com Inc. 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 - Diversified ordering - Commissions - Commissions - Margin Trading - No commissions on methods - HYPER short-selling - Ichi-nichi (one day) Service for Day-trades margin trading - Availability of US margin trade - Premium Short- - Diversified ordering stocks; commissions - Special short selling selling methods - Trading tool - Availability of short - Activist fund stocks for general margin trades Number of accounts ('000) 1,856 5,428 3,757 1,238 1,152 Number of margin accounts ('000) 135 656 327 202 159 Margin accounts as % of total 7.3% 12.1% 8.7% 16.3% 13.8% Assets under customers' account (JPYbn) 3,751 11,087 6,606 2,114 2,029 Assets under customers' account per account (JPYmn) 2.0 2.0 1.8 1.7 1.8 Equity trading value (JPYbn) 13,543 92,222 59,226 25,226 22,290 Equity trading value per account (JPYmn) 7.3 17.0 15.8 20.4 19.4 Margin trading balance (JPYbn) 127 647 336 192 230 Balance per account (JPYmn) 0.07 0.12 0.09 0.15 0.20 Margin trading balance per account (JPYmn) 0.94 0.99 1.03 0.95 1.44 Source: Shared Research based on Matsui Securities, SBI Securities, Rakuten Securities, Monex Securities, au Kabucom Securities data Note: Brokerage commission rates are calculated utilizing data for equity trading value and brokerage commission rates from FY03/20.

Commission strategy Since the early 2000s, SBI Securities and Rakuten Securities have had a strategy of winning customers through low commissions. Monex, Matsui, and au Kabucom were reluctant to lower commissions, but au Kabucom began to lower commissions in FY03/10, and Matsui aggressively followed suit from FY03/13 onward.

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au Kabucom 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, and followed this in December 2019 with a reduction in interest rates charged on margin loans and the elimination of brokerage commission on margin trades.

Matsui Securities launched its margin day trading service in Q4 FY03/13 and has been reducing commission rates since FY03/13. In December 2019, Matsui lowered the minimum principal value of trades in one day need to qualify for commission-free trading from JPY1.0mn to JPY500,000.

By lowering commissions in various ways, au Kabucom 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 and FY03/19.

While Monex, Inc. had always been reluctant to engage in compete on the basis of low commissions, in November 2017 it went ahead a cut commission rates on margin trades. Since February 2020 it has been reducing commission rate cuts for certain services and, as part of this effort, launched its commission-free one-day margin trading service (requiring same-day settlement)

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 ▷

Number of customer accounts

Number of customer accounts FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 5-year CAGR SBI Securities 3,246,363 3,563,881 3,839,883 4,261,410 4,630,676 5,427,829 10.8% Rakuten Securities 1,838,630 2,039,530 2,250,038 2,610,549 3,017,334 3,757,172 15.4% Monex, Inc. 1,533,992 1,635,172 1,696,123 1,760,805 1,817,926 1,856,376 3.9% Mat sui Securit ies 1,002,439 1,056,072 1,094,240 1,136,018 1,184,102 1,237,989 4.3% au kabu.com Securities 920,998 1,002,268 1,048,720 1,087,327 1,118,041 1,151,544 4.6% Total 8,542,422 9,296,923 9,929,004 10,856,109 11,768,079 13,430,910 9.5% Source: Shared Research based on each company’s data

Customer account growth rate FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 SBI Securities 10.3% 9.8% 7.7% 11.0% 8.7% 17.2% Rakuten Securities 9.9% 10.9% 10.3% 16.0% 15.6% 24.5% Monex, Inc. 5.2% 6.6% 3.7% 3.8% 3.2% 2.1% Mat sui Securit ies 6.4% 5.4% 3.6% 3.8% 4.2% 4.6% au kabu.com Securities 6.0% 8.8% 4.6% 3.7% 2.8% 3.0% Total 8.3% 8.8% 6.8% 9.3% 8.4% 14.1% Source: Shared Research based on each company’s data

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Margin accounts FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 5-year CAGR SBI Securities 355,375 409,473 462,555 527,102 592,312 656,301 13.1% Rakuten Securities 187,514 205,861 222,452 252,675 282,938 327,364 11.8% Monex, Inc. 97,515 105,041 110,954 118,921 127,444 135,213 6.8% Mat sui Securit ies 159,375 169,534 177,242 184,731 190,961 201,521 4.8% au kabu.com Securities 113,528 127,290 138,146 146,730 153,839 159,488 7.0% Source: Shared Research based on each company’s data

Margin account growth rate FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 SBI Securities 13.1% 15.2% 13.0% 14.0% 12.4% 10.8% Rakuten Securities 8.7% 9.8% 8.1% 13.6% 12.0% 15.7% Monex, Inc. - 7.7% 5.6% 7.2% 7.2% 6.1% Mat sui Securit ies 7.8% 6.4% 4.5% 4.2% 3.4% 5.5% au kabu.com Securities 13.4% 12.1% 8.5% 6.2% 4.8% 3.7% Source: Shared Research based on each company’s data

Margin account ratio (number of margin accounts / number of customer accounts)

FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 SBI Securities 10.9% 11.5% 12.0% 12.4% 12.8% 12.1% Rakuten Securities 10.2% 10.1% 9.9% 9.7% 9.4% 8.7% Monex, Inc. 6.4% 6.4% 6.5% 6.8% 7.0% 7.3% Matsui Securities 15.9% 16.1% 16.2% 16.3% 16.1% 16.3% au kabu.com Securities 12.3% 12.7% 13.2% 13.5% 13.8% 13.8% Source: Shared Research based on each company’s data

Customer assets in custody

Customer assets in custody

FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 5- y e a r CA GR SBI Securities 8,184,500 8,313,300 9,388,200 11,425,700 11,412,900 11,086,900 6.3% Rakuten Securities 3,506,620 3,533,823 4,099,172 5,026,163 5,598,103 6,605,900 13.5% Monex, Inc. 3,705,472 3,477,282 3,803,176 4,229,011 4,058,575 3,751,066 0.2% Matsui Securities 2,215,656 2,063,892 2,275,160 2,524,428 2,340,344 2,114,300 -0.9% au kabu.com Securities 2,026,681 1,920,672 2,120,425 2,335,700 2,205,100 2,029,000 0.0% Total 19,638,929 19,308,969 21,686,133 25,541,002 25,615,022 25,587,166 5.4% Source: Shared Research based on each company’s data

Per account assets under custody

FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 SBI Securities 2.5 2.3 2.4 2.7 2.5 2.0 Rakuten Securities 1.9 1.7 1.8 1.9 1.9 1.8 Monex, Inc. 2.4 2.1 2.2 2.4 2.2 2.0 Matsui Securities 2.2 2.0 2.1 2.2 2.0 1.7 au kabu.com Securities 2.2 1.9 2.0 2.1 2.0 1.8 Source: Shared Research based on each company’s data

Equity trading value

Equity trading value

(JPYmn) FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 5- y e a r CA GR SBI Securities 108,448,960 115,715,106 92,515,600 111,228,600 99,249,700 92,222,100 -3.2% Rakuten Securities 45,578,939 46,549,165 40,416,297 51,942,687 52,593,061 59,226,260 5.4% Monex, Inc. 17,093,831 17,054,153 13,315,856 16,768,680 14,166,404 13,542,899 -4.6% Matsui Securities 36,626,479 38,724,705 34,540,204 35,606,752 28,414,607 25,226,433 -7.2% au kabu.com Securities 27,093,482 28,675,866 23,534,144 27,872,478 24,292,400 22,290,000 -3.8% Sum 234,841,691 246,718,995 204,322,101 243,419,197 218,716,172 212,507,692 -2.0% Source: Shared Research based on each company’s data

Balance of margin trades outstanding

FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 SBI Securities ------Rakuten Securities 28,808,261 29,829,703 26,947,483 34,371,858 37,321,076 42,199,519 Monex, Inc. 8,459,885 8,426,498 6,438,794 7,792,693 7,651,524 7,676,351 Matsui Securities 28,859,481 31,050,443 28,675,537 28,067,421 22,979,875 20,270,644 au kabu.com Securities - - - - 19,212,000 17,625,000 Source: Shared Research based on each company’s data

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Margin trades as percent of all equity trades

FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 SBI Securities ------Rakuten Securities 63.2% 64.1% 66.7% 66.2% 71.0% 71.3% Monex, Inc. 49.5% 49.4% 48.4% 46.5% 54.0% 56.7% Matsui Securities 78.8% 80.2% 83.0% 78.8% 80.9% 80.4% au kabu.com Securities - - - - 79.1% 79.1% Source: Shared Research based on each company’s data

Per account equity trading value (equity trading value / number of customer accounts)

FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 SBI Securities 35.0 34.0 25.0 27.5 22.3 18.3 Rakuten Securities 26.0 24.0 18.8 21.4 18.7 17.5 Monex, Inc. 11.4 10.8 8.0 9.7 7.9 7.4 Matsui Securities 37.7 37.6 32.1 31.9 24.5 20.8 au kabu.com Securities 30.3 29.8 22.9 26.1 22.0 19.6 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)

FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 SBI Securities 14.5 14.0 10.5 10.7 8.7 8.2 Rakuten Securities 14.6 13.2 10.6 11.4 9.9 9.7 Monex, Inc. 5.0 4.7 3.7 4.2 3.4 3.5 Matsui Securities 17.7 18.1 15.9 14.8 11.7 11.3 au kabu.com Securities 14.6 14.5 11.6 12.5 10.7 10.5 Source: Shared Research based on each company’s data

Balances of margin trades outstanding

Balance of margin trades outstanding

(JPYmn) FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 5- y e a r CA GR SBI Securities 787,000 677,000 799,000 1,001,000 838,000 647,000 -3.8% Rakuten Securities 358,480 303,752 353,418 468,483 405,325 335,902 -1.3% Monex, Inc. 197,800 163,400 166,100 205,300 157,000 126,800 -8.5% Matsui Securities 319,024 255,177 278,086 331,931 232,829 191,676 -9.7% au kabu.com Securities 289,124 265,811 295,752 335,800 299,300 230,000 -4.5% Source: Shared Research based on each company’s data

Balances of margin trades outstanding: average balance per account

(JPYmn) FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 SBI Securities 0.24 0.19 0.21 0.23 0.18 0.12 Rakuten Securities 0.19 0.15 0.16 0.18 0.13 0.09 Monex, Inc. 0.13 0.10 0.10 0.12 0.09 0.07 Matsui Securities 0.32 0.24 0.25 0.29 0.20 0.15 au kabu.com Securities 0.31 0.27 0.28 0.31 0.27 0.20 Source: Shared Research based on various company data

Per account revenue

Per account net operating revenue (net operating revenue / number of customer accounts)

(JPY) FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 5- y e a r CA GR SBI Securities 23,323 24,347 22,666 26,415 25,731 22,552 -0.7% Rakuten Securities 25,077 26,691 20,459 21,510 20,127 16,680 -7.8% Monex, Inc. 19,933 20,123 15,929 17,006 14,555 13,449 -7.6% Matsui Securities 33,833 32,065 24,647 27,333 22,412 18,451 -11.4% au kabu.com Securities 23,418 23,282 18,568 19,662 16,566 13,773 -10.1% 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.

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Per account brokerage commissions (brokerage commissions / number of customer accounts)

(JPY) FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 5- y e a r CA GR SBI Securities 9,242 9,195 7,690 8,522 6,882 6,333 -7.3% Rakuten Securities 10,579 9,814 7,306 7,335 5,362 4,673 -15.1% Monex, Inc. 10,623 10,191 7,614 8,237 6,023 5,693 -11.7% Matsui Securities 20,597 19,834 15,123 16,366 12,314 10,611 -12.4% au kabu.com Securities 10,639 10,375 7,832 8,451 6,430 5,175 -13.4% 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 net financial income (net financial income / number of customer accounts)

(JPY) FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 5- y e a r CA GR SBI Securities 7,604 7,758 7,176 9,420 8,211 5,700 -5.6% Rakuten Securities 7,552 7,113 6,224 7,646 6,760 4,964 -8.1% Monex, Inc. 4,568 4,129 3,879 4,466 4,498 3,731 -4.0% Matsui Securities 12,048 10,931 8,593 9,246 8,446 6,386 -11.9% au kabu.com Securities 9,372 9,184 7,347 8,462 7,518 5,998 -8.5% 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) FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 5- y e a r CA GR SBI Securities 37,507 43,025 45,934 53,426 59,052 71,292 13.7% Rakuten Securities 23,613 27,275 26,836 31,398 37,825 44,644 13.6% Monex, Inc. 21,088 24,428 25,738 24,024 23,282 22,028 0.9% Matsui Securities 10,806 11,258 11,560 11,949 12,547 13,436 4.5% au kabu.com Securities 10,839 11,768 11,535 13,066 12,386 13,216 4.0% Source: Shared Research based on each company’s data

SG&A expenses to net operating revenue ratio

FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 SBI Securities 52.0% 51.9% 54.7% 49.9% 51.6% 62.9% Rakuten Securities 53.6% 52.7% 61.2% 60.1% 66.8% 79.0% Monex, Inc. 70.7% 76.6% 97.0% 81.7% 89.4% 89.2% Matsui Securities 32.9% 34.1% 43.6% 39.2% 48.3% 60.1% au kabu.com Securities 51.7% 52.6% 60.6% 62.2% 67.8% 84.6% Source: Shared Research based on each company’s data

Per account SG&A expenses

(JPY) FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 SBI Securities 12,118 12,635 12,408 13,189 13,282 14,175 Rakuten Securities 13,448 14,066 12,512 12,919 13,442 13,180 Monex, Inc. 14,098 15,416 15,452 13,899 13,011 11,990 Matsui Securities 11,115 10,938 10,752 10,715 10,816 11,095 au kabu.com Securities 12,110 12,238 11,248 12,234 11,233 11,646 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) FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 5- y e a r CA GR SBI Securities 9,238 10,868 10,096 12,552 12,033 17,011 13.0% Rakuten Securities 9,932 11,250 10,975 14,219 17,228 20,831 16.0% Monex, Inc. 6,278 6,436 5,432 5,886 5,168 5,106 -4.0% Matsui Securities 4,719 4,674 4,345 4,592 4,408 4,566 -0.7% au kabu.com Securities 5,500 5,908 5,010 5,732 4,761 5,021 -1.8% Source: Shared Research based on various company data

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Personnel expenses

Personnel expenses

(JPYmn) FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 5- y e a r CA GR SBI Securities 4,227 5,891 8,680 13,065 16,310 18,117 - Rakuten Securities 3,310 3,705 3,597 3,943 4,754 5,206 9.5% Monex, Inc. 2,579 3,019 2,995 2,812 2,676 - - Matsui Securities 2,030 2,178 2,227 2,364 2,661 2,607 5.1% au kabu.com Securities 1,159 1,166 1,427 1,511 1,566 1,769 8.8% Source: Shared Research based on each company’s data

Personnel expenses as percent of net operating income

(JPYmn) FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 SBI Securities 5.9% 7.1% 10.3% 12.2% 14.3% 16.0% Rakuten Securities 7.5% 7.2% 8.2% 7.5% 8.4% 9.2% Monex, Inc. 8.6% 9.5% 11.3% 9.6% 10.3% - Matsui Securities 6.2% 6.6% 8.4% 7.8% 10.2% 11.7% au kabu.com Securities 5.5% 5.2% 7.5% 7.2% 8.6% 11.3% Source: Shared Research based on each company’s data

System-related expenses

System-related expenses

(JPYmn) FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 5- y e a r CA GR SBI Securities 20,760 21,997 22,398 22,528 23,260 28,354 6.4% Rakuten Securities 9,660 10,763 11,183 11,813 13,801 17,246 12.3% Monex, Inc. 9,049 11,335 13,567 11,839 12,121 - - Matsui Securities 3,801 3,778 3,999 4,498 4,946 5,804 8.8% au kabu.com Securities 3,714 3,847 4,356 5,050 5,045 5,747 9.1% Source: Shared Research based on each company’s data

System-related expenses to net operating revenue ratio

FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 SBI Securities 28.8% 26.5% 26.7% 21.1% 20.3% 25.0% Rakuten Securities 21.9% 20.8% 25.5% 22.6% 24.4% 30.5% Monex, Inc. 30.3% 35.5% 51.1% 40.3% 46.5% - Matsui Securities 11.6% 11.4% 15.1% 14.8% 19.0% 26.0% au kabu.com Securities 17.7% 17.2% 22.9% 24.0% 27.6% 36.8% Source: Shared Research based on each company’s data

Per account system-related expenses

(JPY) FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 5- y e a r CA GR SBI Securities 6,707 6,460 6,050 5,562 5,232 5,638 -3.4% Rakuten Securities 5,502 5,551 5,214 4,861 4,905 5,091 -1.5% Monex, Inc. 6,050 7,153 8,145 6,849 6,774 - - Matsui Securities 3,910 3,671 3,719 4,034 4,264 4,793 4.2% au kabu.com Securities 4,150 4,000 4,248 4,728 4,575 5,064 4.1% 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) FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 SBI Securities ------Rakuten Securities 11.0 12.4 14.1 14.2 18.5 26.2 Monex, Inc. 16.0 20.2 26.9 21.1 23.2 - Matsui Securities 6.9 6.9 7.9 8.4 9.6 12.2 au kabu.com Securities 3.6 3.7 4.8 5.3 5.5 6.9 Source: Shared Research based on each company’s data

Competitors SBI Securities Japan’s largest online 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

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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 2020, it was the largest online broker in the industry in terms of number of accounts, assets under custody, and trading value.

At SBI Securities, net operating revenues comes from brokerage commissions, net financial income, and trading income. In addition brokerage commission income from cash equity trading, SBI Securities also gets income from margin trading in stocks, forex margin trading, and mutual funds.

Earnings trends and key indicators at SBI Securities

Key performance indicators FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 Number of accounts ('000) 2,944 3,246 3,564 3,840 4,261 4,631 5,428 YoY 12.9% 10.3% 9.8% 7.7% 11.0% 8.7% 17.2% Assets under customers' accounts (JPYbn) 6,750 8,185 8,313 9,388 11,426 11,413 11,087 YoY 18.0% 21.3% 1.6% 12.9% 21.7% -0.1% -2.9% Domestic equity brokerage trading value (JPYbn) 129,986 108,449 115,715 92,516 111,229 99,250 92,222 YoY 157.2% -16.6% 6.7% -20.0% 20.2% -10.8% -7.1% Margin trading balance (JPYmn) 691,000 787,000 677,000 799,000 1,001,000 838,000 647,000 YoY 33.7% 13.9% -14.0% 18.0% 25.3% -16.3% -22.8% Earnings (JPYmn) FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20

Net operating revenue 69,878 72,188 82,906 83,907 106,997 114,402 113,418 YoY 73.1% 3.3% 14.8% 1.2% 27.5% 6.9% -0.9% Commissions received 41,453 40,241 43,994 40,737 52,671 52,623 53,028 YoY 77.3% -2.9% 9.3% -7.4% 29.3% -0.1% 0.8% Brokerage commissions 32,190 28,606 31,310 28,466 34,521 30,599 31,851 YoY 86.0% -11.1% 9.5% -9.1% 21.3% -11.4% 4.1% % of net operating revenue 46.1% 39.6% 37.8% 33.9% 32.3% 26.7% 28.1% Underwriting and distribution 575 1,441 1,145 1,494 958 3,387 2,019 Subscriptoin and distribution 3,714 3,946 4,305 3,410 4,491 5,462 2,044 Other commissions 4,974 6,247 7,232 7,365 12,700 13,175 17,111 Net trading income 8,096 8,363 13,217 18,117 19,266 27,667 35,431 YoY 20.3% 3.3% 58.0% 37.1% 6.3% 43.6% 28.1% % of net operating revenue 11.6% 11.6% 15.9% 21.6% 18.0% 24.2% 31.2% Net interest income 20,254 23,537 26,417 26,564 38,159 36,507 28,667 YoY 98.8% 16.2% 12.2% 0.6% 43.6% -4.3% -21.5% % of net operating revenue 29.0% 32.6% 31.9% 31.7% 35.7% 31.9% 25.3% SG&A expenses 37,118 37,507 43,025 45,934 53,426 59,052 71,292 YoY 28.1% 1.0% 14.7% 6.8% 16.3% 10.5% 20.7% SG&A as % of net operating revenue 53.1% 52.0% 51.9% 54.7% 49.9% 51.6% 62.9% Trading related expenses 9,849 9,238 10,868 10,096 12,552 12,033 17,011 YoY 66.8% -6.2% 17.6% -7.1% 24.3% -4.1% 41.4% Personnel expenses 3,694 4,227 5,891 8,680 13,065 16,310 18,117 YoY -4.7% 14.4% 39.4% 47.3% 50.5% 24.8% 11.1% System related expenses 19,770 20,760 21,997 22,398 22,528 23,260 28,354 YoY 23.8% 5.0% 6.0% 1.8% 0.6% 3.2% 21.9% Other expenses 3,806 3,282 4,264 4,756 5,277 7,447 7,806 YoY 17.9% -13.8% 29.9% 11.5% 11.0% 41.1% 4.8% Operating profit 32,760 34,681 39,881 37,972 53,570 55,349 42,126 YoY 187.4% 5.9% 15.0% -4.8% 41.1% 3.3% -23.9% OPM 46.9% 48.0% 48.1% 45.3% 50.1% 48.4% 37.1% 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.

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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.

Earnings trends and key indicators at Rakuten Securities

Key performance indicators FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 Number of accounts ('000) 1,673 1,839 2,040 2,250 2,611 3,017 3,757 YoY 14.4% 9.9% 10.9% 10.3% 16.0% 15.6% 24.5% Assets under customers' accounts (JPYbn) 2,752 3,507 3,534 4,099 5,026 5,598 6,606 YoY 20.8% 27.4% 0.8% 16.0% 22.6% 11.4% 18.0% Domestic equity brokerage trading value (JPYbn) 56,037 45,579 46,549 40,416 42,189 52,593 59,696 YoY 143.4% -18.7% 2.1% -13.2% 4.4% 24.7% 13.5% Margin trading balance (JPYmn) 322,252 358,480 303,752 353,418 468,483 405,325 335,902 YoY 20.8% 11.2% -15.3% 16.4% 32.6% -13.5% -17.1% Average margin trading balance (JPYmn) 320,795 332,274 346,611 300,775 399,998 417,755 398,756 YoY 92.3% 3.6% 4.3% -13.2% 33.0% 4.4% -4.5% Earnings (JPYmn) FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 Cons. Cons. Cons. Cons. Cons. Cons. Cons. Net operating revenue 43,341 44,031 51,756 43,880 52,275 56,636 56,501 YoY 96.6% 1.6% 17.5% -15.2% 19.1% 8.3% -0.2% Commissions received 26,066 23,706 24,834 20,478 23,478 20,803 21,612 YoY 72.8% -9.1% 4.8% -17.5% 14.6% -11.4% 3.9% Brokerage commissions 21,509 18,576 19,031 15,669 17,825 15,088 15,830 YoY 87.3% -13.6% 2.4% -17.7% 13.8% -15.4% 4.9% % of net operating revenue 49.6% 42.2% 36.8% 35.7% 34.1% 26.6% 28.0% Subscriptoin and distribution 2,215 2,178 1,944 1,343 1,882 1,484 1,303 Other commissions 2,340 2,950 3,858 3,464 3,771 4,204 4,433 Net trading income 5,142 6,508 9,609 9,568 9,425 15,777 16,833 YoY 316.4% 26.6% 47.6% -0.4% -1.5% 67.4% 6.7% % of net operating revenue 11.9% 14.8% 18.6% 21.8% 18.0% 27.9% 29.8% Net interest income 11,517 13,261 13,793 13,349 18,581 19,021 16,813 YoY 126.1% 15.1% 4.0% -3.2% 39.2% 2.4% -11.6% % of net operating revenue 26.6% 30.1% 26.7% 30.4% 35.5% 33.6% 29.8% SG&A expenses 20,730 23,613 27,275 26,836 31,398 37,825 44,644 YoY 37.8% 13.9% 15.5% -1.6% 17.0% 20.5% 18.0% SG&A as % of net operating revenue 47.8% 53.6% 52.7% 61.2% 60.1% 66.8% 79.0% Trading related expenses 9,172 9,932 11,250 10,975 14,219 17,228 20,831 YoY 66.2% 8.3% 13.3% -2.4% 29.6% 21.2% 20.9% Personnel expenses 2,743 3,310 3,705 3,597 3,943 4,754 5,206 YoY 6.6% 20.7% 11.9% -2.9% 9.6% 20.6% 9.5% System related expenses 8,363 9,660 10,763 11,183 11,813 13,801 17,246 YoY 25.1% 15.5% 11.4% 3.9% 5.6% 16.8% 25.0% Other expenses 447 707 1,552 1,078 1,418 2,036 1,356 YoY 67.4% 58.2% 119.5% -30.5% 31.5% 43.6% -33.4% Operating profit 22,611 20,417 24,481 17,043 20,877 18,810 11,856 YoY 223.3% -9.7% 19.9% -30.4% 22.5% -9.9% -37.0% OPM 52.2% 46.4% 47.3% 38.8% 39.9% 33.2% 21.0% 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. Figures for FY03/20 reflect results for the 12-month period comprised of Q2, Q3, and Q4 of FY12/19 and Q1 of FY12/20.

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. With the startup of its mutual fund business in FY03/17, Matsui began its push to move away from its traditional dependence on its stock brokerage business and actively develop a broader product and service lineup while at the same time maintaining its low-cost operations.

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Earnings trends and key indicators at Matsui Securities

Key performance indicators FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 Number of accounts ('000) 942 1,002 1,056 1,094 1,136 1,184 1,238 YoY 8.2% 6.4% 5.4% 3.6% 3.8% 4.2% 4.6% Assets under customers' accounts (JPYbn) 1,917 2,216 2,064 2,275 2,524 2,340 2,114 YoY 11.7% 15.6% -6.8% 10.2% 11.0% -7.3% -9.7% Domestic equity brokerage trading value (JPYbn) 40,445 36,626 38,725 34,540 35,607 28,415 25,226 YoY 216.6% -9.4% 5.7% -10.8% 3.1% -20.2% -11.2% Margin trading balance (JPYmn) 3,615 3,755 3,318 3,484 4,292 3,211 2,837 YoY 22.2% 3.9% -11.6% 5.0% 23.2% -25.2% -11.7% Average margin trading balance (JPYmn) 3,529 3,515 3,742 3,083 3,796 3,761 3,131 YoY 70.9% -0.4% 6.5% -17.6% 23.1% -0.9% -16.8% Earnings (JPYmn) FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 Net operating revenue 38,738 32,893 33,003 26,499 30,480 25,999 22,345 YoY 94.5% -15.1% 0.3% -19.7% 15.0% -14.7% -14.1% Commissions received 27,349 21,167 21,742 17,253 18,968 14,986 13,490 YoY 93.1% -22.6% 2.7% -20.6% 9.9% -21.0% -10.0% Brokerage commissions 26,180 20,025 20,414 16,260 18,250 14,285 12,850 YoY 100.3% -23.5% 1.9% -20.3% 12.2% -21.7% -10.0% % of net operating revenue 67.6% 60.9% 61.9% 61.4% 59.9% 54.9% 57.5% Underwriting and distribution 5 - 50 13 14 21 10 Subscriptoin and distribution - 3 - 1 5 27 36 Other commissions 1,169 1,139 1,278 979 698 652 593 Net trading income 11 8 6 3 1,201 1,214 1,120 YoY - -27.3% -25.0% -50.0% - 1.1% -7.7% % of net operating revenue 0.0% 0.0% 0.0% 0.0% 3.9% 4.7% 5.0% Net interest income 11,374 11,713 11,251 9,239 10,310 9,798 7,734 YoY 97.1% 3.0% -3.9% -17.9% 11.6% -5.0% -21.1% % of net operating revenue 29.4% 35.6% 34.1% 34.9% 33.8% 37.7% 34.6% SG&A expenses 11,648 10,806 11,258 11,560 11,949 12,547 13,436 YoY 19.8% -7.2% 4.2% 2.7% 3.4% 5.0% 7.1% SG&A as % of net operating revenue 30.1% 32.9% 34.1% 43.6% 39.2% 48.3% 60.1% Trading related expenses 4,957 4,719 4,674 4,345 4,592 4,408 4,566 YoY 47.7% -4.8% -1.0% -7.0% 5.7% -4.0% 3.6% Personnel expenses 2,075 2,030 2,178 2,227 2,364 2,661 2,607 YoY 13.3% -2.2% 7.3% 2.2% 6.2% 12.6% -2.0% System related expenses 4,285 3,801 3,778 3,999 4,498 4,946 5,804 YoY -1.2% -11.3% -0.6% 5.8% 12.5% 10.0% 17.3% Other expenses 331 255 627 990 494 532 460 YoY 70.6% -23.0% 145.9% 57.9% -50.1% 7.7% -13.5% Operating profit 27,090 22,087 21,745 14,939 18,532 13,451 8,909 YoY 165.7% -18.5% -1.5% -31.3% 24.1% -27.4% -33.8% OPM 69.9% 67.1% 65.9% 56.4% 60.8% 51.7% 39.9% Source: Shared Research based on company data

au Kabucom Securities (TSE1: 8703) The online broker of the Mitsubishi UFJ Financial Group and the KDDI 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. In August 2019, au Financial Holdings Corporation—a wholly owned subsidiary of KDDI (TSE19433)—launched a takeover bid and acquired 37.96% stake in kabu.com Securities. With this leaving au Financial Holdings and the Mitsubishi UFJ Financial Group as the two remaining shareholders, kabu.com Securities became au Kabucom Securities and was delisted.

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. au Kabucom 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.

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In February 2012, au Kabucom 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. au Kabucom boasts the largest number of stocks in the industry that can be traded on negotiable margin trading for short positions. Earnings trends and key indicators at au Kabucom securities

Key performance indicators FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 Number of accounts ('000) 869 921 1,002 1,049 1,087 1,118 1,152 YoY 7.3% 6.0% 8.8% 4.6% 3.7% 2.8% 3.0% Assets under customers' accounts (JPYbn) 1,688 2,027 1,921 2,120 2,336 2,205 2,029 YoY 14.7% 20.1% -5.2% 10.4% 10.2% -5.6% -8.0% Domestic equity brokerage trading value (JPYbn) 28,373 27,093 28,676 23,534 27,872 24,292 22,290 YoY 153.1% -4.5% 5.8% -17.9% 18.4% -12.8% -8.2% Margin trading balance (JPYmn) 247,600 289,100 265,800 295,800 335,800 299,300 230,000 YoY 21.8% 16.8% -8.1% 11.3% 13.5% -10.9% -23.2% Average margin trading balance (JPYmn) 213,625 225,308 242,975 208,758 254,192 254,608 223,775 YoY 78.3% 5.5% 7.8% -14.1% 21.8% 0.2% -12.1% Earnings (JPYmn) FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 Net operating revenue 21,286 20,960 22,389 19,041 21,000 18,267 15,630 YoY 85.5% -1.5% 6.8% -15.0% 10.3% -13.0% -14.4% Commissions received 13,362 11,555 12,210 9,842 10,806 8,821 7,544 YoY 71.2% -13.5% 5.7% -19.4% 9.8% -18.4% -14.5% Brokerage commissions 11,340 9,522 9,977 8,032 9,026 7,090 5,872 YoY 82.6% -16.0% 4.8% -19.5% 12.4% -21.4% -17.2% % of net operating revenue 53.3% 45.4% 44.6% 42.2% 43.0% 38.8% 37.6% Underwriting and distribution 352 293 356 224 192 262 112 Subscriptoin and distribution 1,670 1,739 1,876 1,585 1,588 1,468 1,559 Net trading income 623 1,016 1,347 1,108 1,062 1,040 1,114 YoY 291.8% 63.1% 32.6% -17.7% -4.2% -2.1% 7.1% % of net operating revenue 2.9% 4.8% 6.0% 5.8% 5.1% 5.7% 7.1% Net interest income 7,300 8,388 8,832 7,534 9,038 8,290 6,807 YoY 108.2% 14.9% 5.3% -14.7% 20.0% -8.3% -17.9% % of net operating revenue 34.3% 40.0% 39.4% 39.6% 43.0% 45.4% 43.6% SG&A expenses 9,707 10,839 11,768 11,535 13,066 12,386 13,216 YoY 27.9% 11.7% 8.6% -2.0% 13.3% -5.2% 6.7% SG&A as % of net operating revenue 45.6% 51.7% 52.6% 60.6% 62.2% 67.8% 84.6% Trading related expenses 4,672 5,500 5,908 5,010 5,732 4,761 5,021 YoY 35.1% 17.7% 7.4% -15.2% 14.4% -16.9% 5.5% Personnel expenses 1,154 1,159 1,166 1,427 1,511 1,566 1,769 YoY 25.4% 0.4% 0.6% 22.4% 5.9% 3.6% 13.0% System related expenses 3,453 3,714 3,847 4,356 5,050 5,045 5,747 YoY 17.8% 7.6% 3.6% 13.2% 15.9% -0.1% 13.9% Other expenses 424 462 843 739 771 1,010 674 YoY 53.1% 9.0% 82.5% -12.3% 4.3% 31.0% -33.3% Operating profit 11,579 10,120 10,621 7,505 7,934 5,881 2,414 YoY 198.3% -12.6% 5.0% -29.3% 5.7% -25.9% -59.0% OPM 54.4% 48.3% 47.4% 39.4% 37.8% 32.2% 15.4% Source: Shared Research based on company data

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Historical performance 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 cumulative Q3 FY03/20 compares with JPY632mn 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.

By segment, the Japan segment saw a decline in revenue, owing to the lower equity trading value of retail investors. It also posted a drop in segment profit, stemming from the revenue decline, even though SG&A expenses fell due to lower depreciation. The US segment recorded a rise in both revenue and profit, as the increase in net financial income offset the decrease in commission income. The Crypto Asset segment posted an increase in both revenue and profit, owing to cost reduction efforts and rising revenue on the cryptocurrency exchange after the completion of registration as a virtual currency exchange service provider in January 2019.

Japan segment Overview of cumulative Q3 FY03/20 results 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 value by retail investors in the market as a whole was down. Monex, Inc.’s market share of retail trading and the average commission rate on stock trades remained flat YoY.

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The average daily equity trading value 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. The cash trading value was down 24.3% YoY, while the margin trading value was down 11.5%, bringing the ratio of margin trades up 3.9pp YoY to 57.1% (Shared Research estimate based on company data). In cumulative Q3 FY03/20, the number of trading days was 183 (186 in cumulative Q3 FY03/19), and the trading value at Monex, Inc. was down 17.5% YoY to JPY9.1tn.

The average commission rate on stock trades was up 0.001pp YoY to 0.076%. Note that the brokerage commissions for cumulative Q3 include a one-time reversal of allowances for Monex Points amounting to JPY252mn. Without this impact, the average commission rate on stock trades would have been down 0.002pp YoY to 0.073%, with the decline coming primarily from a rise in the ratio of margin trades, which are offered at lower commission rates than cash trades.

In December 2019, Monex, Inc. introduced a cashback program, which erased sales commissions for investment trusts and commissions on margin trades for ETFs and REITs. The cashback program reduced revenue by approximately JPY20mn during cumulative Q3 FY03/20. The company estimates the negative impact on revenue over full-year FY03/20 to come to roughly JPY100mn.

Trading income Net trading income of JPY3.5bn was up 4.4% YoY. According to the Financial Futures Association of Japan, the trading value for OTC forex margin trades, during the period from April to December 2019, was down 10.6% YoY to JPY2,525tn. Meanwhile, Monex, Inc.’s forex trading value was up 72.6% YoY to JPY43.4tn, but forex trading income was down 2.1% YoY to JPY2.6bn. The rise in forex trading value 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) in November 2018. The company further narrowed the spread to JPY0.002 (fixed in principle, but conditions apply) in October 2019.

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. At end-Q3 FY03/20, the balance of margin trading accounts on the Tokyo and Nagoya stock exchanges was JPY3.1tn (-0.5% YoY), while the balance of margin trading accounts at Monex, Inc. 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. Trading-related expenses totaled JPY3.6bn (-6.8% YoY), personnel expenses came to JPY3.3bn (+7.9% YoY), and system-related expenses (including real estate-related expenses, office and supplies, and depreciation) amounted to JPY7.9bn (-15.4% YoY).

The decline in trading-related expenses was mainly due to falling advertising expenses, down 17.5% YoY to JPY757mn. 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. Depreciation fell 19.3% YoY to JPY3.7bn, chiefly due to booking an impairment loss of JPY1.8bn on fixed assets linked to the Japanese equity trading tool TradeStation in Q4 FY03/19 and changes in the depreciation period.

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).

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Other developments at the Japan segment Aiming to transform its business model from a traditional broker service model (i.e., collecting commissions for each trade) to an asset management service model (i.e., receiving compensation for asset building and asset management services), Monex, Inc. established Japan Catalyst, Inc. and narrowed its bid-ask spread on forex trading services.

Industry peer announces plans for 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 stocks, ETFs, and options trading on US and Canadian exchanges. Competitors have followed suit with their commission-free trading packages.

SBI Holdings (TSE1: 8473), the parent company of SBI Securities, the largest online broker in Japan, announced at its 1H FY03/20 briefing held in October 2019 that it aims to introduce commission-free trading for all trades under a three-year plan, starting with proprietary trading system (PTS) overnight trades. (However, the presentation material for Q3 FY03/20 results did not refer to a three-year plan, but only indicated that the company would promote commission-free trading based on progress made by new and existing brokerages in implementing commission-free trading.) To realize commission-free trading, SBI Holdings said that it plans to expand its revenue base outside of commissions, boost earnings from the increased trading value and liquidity owing to commission-free trading, and further reduce costs. As for expanding its revenue base, SBI Holdings looks to strengthen the profitability of its underwriting, M&A, forex, crypto asset-related, and other services. To boost earnings from the increased trading value and liquidity, it expects the rise in PTS trading, improved matching of trades in off-auction markets (including so- called “dark pools”), and a larger balance of margin trading accounts to boost interest rate income. Also, it aims to push for cost reductions by adopting AI technology and robotic process automation (RPA) tools.

Shared Research understands the majority of equity-related revenue at Japanese online brokers come from brokerage commissions and net financial income on margin trades. This stands in contrast with online brokers in the US who have diverse sources of revenue, such as financial income from investing assets under custody and payment for order flow. Accordingly, US brokers can offset the impact of commission-free trading with benefits accompanying an increase in the number of accounts.

Monex, Inc. is highly dependent on stock trading commissions and margin trading income. Brokerage commissions accounted for 41.4% of net operating revenue in FY03/19, second only to Matsui Securities out of the five major online brokers in Japan. Monex, Inc. will likely see a drop in revenue and profit should moves by industry peers to lower commission rates over the medium term prompt it to follow suit.

Establishment of Japan Catalyst, Inc. In January 2020, Monex, Inc. established Japan Catalyst, Inc. (JCI), an investment advisory firm that pursues investment returns through proposals to and engagement with listed Japanese firms. JCI will start offering advisory services to engagement investment funds after completing registration as an Investment Advisory and Agency Business under the Financial Instruments and Exchange Act.

JCI’s unique qualities include the following. First, it is funded by retail investors in Japan. Second, it provides advice from investment managers based in Japan. Third, it facilitates a holistic engagement that consists of proposals to and dialogue with target companies, awareness-building activities for retail investors, and proposals to and dialogue with the government, stock exchanges, business community, and media.

Monex, Inc. is preparing to set up JCI as a publicly offered investment trust in Q1 FY2020.

Narrowed the USD/JPY spread on FX PLUS to JPY0.002 On October 17, 2019, Monex, Inc. narrowed the bid-ask spread for the USD/JPY currency pair on FX PLUS (its foreign exchange margin trading service) to JPY0.002 from JPY0.003. Although it had already tightened the spread for all currency pairs in November 2018, Monex, Inc. further lowered the spread for the USD/JPY currency pair.

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US segment Overview of cumulative Q3 FY03/20 results 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, financial income of USD72.3mn was up 20.0% YoY, and net financial income of USD48.0mn was up 27.4% 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 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. 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).

Net financial income at the US segment mainly comes from interest earned on customer assets (cash) in custody, so it is affected by the balance of assets under custody and short-term interest rates in the US. Interest income increased YoY chiefly due to the rise in short-term interest rates.

Customer assets under custody at the end of December 2019 increased 17.0% YoY to USD6.0bn, with the cash balance of assets amounting to approximately USD2.0bn. Until November 2018, the company used floating-for-fixed interest rate swaps for about USD1.0bn of the cash balance under custody, but it stopped using the rate swaps after that. As a result, it has used a floating interest rate since December 2018, improving its net financial income by USD1mn per month compared with prior levels. In 2018, the US Federal Reserve hiked its benchmark federal funds rate from 1.50% in January to 1.75% in March, 2.00% in June, 2.25% in September, and 2.50% in December. But, in 2019, it lowered the rate to 2.25% in July, 2.00% in September, and 1.75% in October.

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SG&A expenses SG&A expenses totaled USD118.8mn (+1.2% YoY) or JPY12.9bn (-0.7% YoY). Trading-related expenses came to USD39.8mn (- 4.1% YoY) or JPY4.3bn (-5.9% YoY), personnel expenses amounted to USD48.1mn (+0.7% YoY) or JPY5.2bn (-1.1% YoY), and system-related expenses (including real estate-related expenses, office and supplies, and depreciation) totaled USD23.6mn (+9.6% YoY) or JPY2.6mn (+7.6% YoY).

The US segment kept a lid on rising SG&A expenses through cost control. Also, a change in accounting standards led to a decline in communication, transportation, and information expenses, though the adoption of IFRS 16 increased depreciation.

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).

Other developments at the US segment The US segment took new measures to increase revenue, such as the introduction of an educational platform, aiming to diversify its revenue source and drive medium-term revenue growth while offsetting the negative impact of commission-free trading plans on revenue.

Commission-free trading plans by peers and introduction of TS GO and TS SELECT 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 TS GO 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 TS GO 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. Although TS GO eliminates trading commissions for options, it still charges USD0.50 per contract.

In November 2019, TradeStation introduced a new pricing plan called TS SELECT. Under this plan, users can trade stocks, ETFs, and options via mobile and online platforms free of commissions. TradeStation Desktop, which comes with various trading tools, can also be used for a competitive price. Options trades are commission-free but cost USD0.60 per contract.

TS GO and TS SELECT pricing plans TS GO TS SELECT Previous price Stocks, ETFs 0 0 USD5.00/trade Options USD0.50/contract USD0.60/contract USD5.00/trade + USD0.50/contract Futures USD0.85/contract/side USD1.50/contract/side USD1.50/contract/side Futures options USD1.50/contract/side USD1.50/contract/side USD1.50/contract/side

Platform usage fees for TS GO and TS SELECT TS GO TS SELECT Previous price Online Free Free Free Mobile Free Free Free TradeStation Desktop Additional charges apply Free Free (USD149.95/month if less than minimum trading value) Minimum balance 0 USD2,000 0 Note: TS GO rates only apply to trades placed via web and mobile platforms. TS GO users must pay an additional USD10.00 per stock and options trade when placing orders via the TradeStation Desktop platform, and an additional charge of USD1.40 per contract for futures trades. In contrast, TS SELECT users can place orders via the TradeStation Desktop platform without additional charges.

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In FY03/19, the US segment reported a total of JPY8.6bn in commission income, with JPY2.0bn of this from stock and ETF trading and JPY6.5bn from futures and options trading. The company estimates the TS GO and TS SELECT plans will reduce revenue by around USD3 –4mn in FY03/20. It expects the impact on commission income to be blunted by the additional step required for users to switch from their existing plan to TS GO or TS SELECT, and commissions would still be received on a per-contract basis for options and futures trades. The company also expects the impact to be partially offset by an increase in revenue from payment for order flow and higher tool usage fees charged on non-active accounts.

Launch of YouCanTrade In January 2020, TradeStation Group, Inc. launched YouCanTrade, an online investment education media service and trading community. YouCanTrade is offered exclusively by You Can Trade, Inc., a new subsidiary of the TradeStation Group.

YouCanTrade delivers social community services to traders, who can watch educational demos of investing and trading in an actual trading room and learn from or teach traders of various level of experience. YouCanTrade also functions as a trading community where traders can share with other traders about the approaches and techniques they have acquired and also learn from veteran traders designated as “coaches.”

Coach: On YouCanTrade, a coach is someone who runs their trading channel where they can share their educational demos live to channel viewers. Note that coaches are not affiliated with YouCanTrade, an investment advisory firm, or securities company. Their aim is not to solicit or sell any particular securities, or give advice and recommendations to viewers.

Began offering services on TradeStation Crypto TradeStation Crypto, Inc., a subsidiary of TradeStation Group, Inc., began offering services to the public on its cryptocurrency exchange platform TradeStation Crypto in November 2019.

TradeStation Crypto is the first service ever to apply the traditional online brokerage model to cryptocurrency trades. Although other exchanges on the market tend to be fragmented and self-contained, TradeStation Crypto aggregates the liquidity pools of multiple markets by integrating their data feeds. The platform claims to offer superior trade execution to customers by using an automated order routing system.

Asia-Pacific segment Overview of cumulative Q3 FY03/20 results 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 cumulative Q3 FY03/19).

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

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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 Overview of cumulative Q3 FY03/20 results 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.

The Crypto Asset segment reported a YoY increase in operating revenue, supported by a rise in cryptocurrency trading value, a larger number of registered users, and a higher trading income on the exchange. The segment turned profitable, with the curtailment of SG&A expenses contributing to profit growth.

Commission income and trading income Commission income included withdrawal and remittance fees and commissions from the cryptocurrency exchange. Trading income, including income from buying and selling on the cryptocurrency exchange, grew YoY in Q1 and Q2 FY03/20.

Customer account trends As of the end of December 2019, the number of registered users on Coincheck totaled 1.98mn (1.73mn at end-December 2018, 1.93mn at end-September 2019), while the number of accounts of verified users was 0.94mn. 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 SG&A expenses of JPY2.5bn were down 25.9% YoY. Personnel expenses and system-related expenses declined thanks to office mergers and a reduction in personnel, offsetting increases in advertising expenses along with the addition of new accounts. The decline in system-related expenses is attributable to various system development activities winding down at Coincheck, following the completion of its registration as a virtual currency exchange service provider under the Payment Services Act in January 2019. The decrease in personnel expenses owed in part to the reduction of phone operators on temporary contracts hired by the company to respond to phone calls during the registration process. Cost savings also came from office mergers.

Pre-tax profit 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% YoY.

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

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Q3 FY03/20 (October–December 2019) results

Operating revenue: JPY12.5bn (-8.6% YoY, -2.6% QoQ) ▷ Net operating revenue: JPY11.2bn (-11.2% YoY, -2.1% QoQ) ▷ Operating profit equivalent: JPY884mn (-34.4% YoY, -7.0% QoQ) ▷ Pre-tax profit: JPY869mn (-37.6% YoY, -13.0% QoQ) ▷ Profit attributable to owners of the parent: JPY573mn (-39.7% YoY, -31.0% QoQ) ▷

Operating revenue was JPY12.5bn (-8.6% YoY, -2.6% QoQ), with commission income of JPY6.1bn (-11.7% YoY, +6.4% QoQ), the YoY decline due in large part to falling commissions at the Japan and US segments. The QoQ increase owes primarily to rising commissions at the Japan segment. Trading income came to JPY1.6bn (-10.1% YoY, -16.8% QoQ), reflecting decreases in trading income at the Japan and Crypto Asset segments. Financial income was JPY4.6bn (-4.0% YoY, -7.6% QoQ) due to lower financial income at the Japan segment that offset increases in interest income at the US segment. Financial income fell QoQ at the US segment.

On the expense front, SG&A expenses came to JPY10.3bn (-8.4% YoY, -1.7% QoQ), reflecting lower systems-related expenses at the Japan segment and a decrease in SG&A expenses at the Crypto Asset 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.

By segment, the Japan segment saw higher revenue and profit QoQ, thanks to recording a reversal of allowances for Monex Points and the QoQ rise in equity trading value. The US segment reported lower revenue and profit QoQ, due to the falling interest rates in the US and the adoption of commission-free pricing plans. The Crypto Asset segment posted a segment loss, owing to the lower revenue from trading income on the cryptocurrency exchange. Trading income fell due to a decline in the trading value of cryptocurrency. Still, the segment contracted the loss compared to a year earlier thanks to cost cuts.

Japan segment Overview of Q3 FY03/20 results For Q3 FY03/20 (October–December 2019), the Japan segment reported operating revenue of JPY6.8bn (-9.0% YoY, +9.7% QoQ). Commission income came to JPY3.3bn (-8.4% YoY, +20.7% QoQ) and trading income was JPY1.2bn (-7.0% YoY, -2.6% QoQ). Financial income amounted to JPY2.2bn (-11.0% YoY, +2.8% QoQ), with financial expenses coming in at JPY511mn (+3.7% YoY, -10.7% QoQ) and net financial income coming in at JPY1.8bn (-14.6% YoY, +7.4% QoQ).

Net operating revenue was JPY6.3bn (-9.9% YoY, +11.8% QoQ). The operating profit equivalent came to JPY927mn (-24.0% YoY, +143.3% QoQ), and pre-tax segment profit amounted to JPY901mn (-20.7% YoY, +110.0% QoQ).

On a YoY basis, the Japan segment saw lower revenue and profit due to a decrease in the equity trading value of retail investors and a smaller margin trading balance. However, on a QoQ basis, the Japan segment posted higher revenue and profit, with the increase mainly coming from a rise in equity trading value of retail investors, an uptick in Monex, Inc.’s market share of trading value, and the recording of a JPY252mn reversal of allowances for Monex Points.

Commission income At the Japan segment, Q3 commissions income were JPY3.3bn (-8.4% YoY, +20.7% QoQ), with the change coming primarily from commissions from stock and ETF trading amounting to JPY2.7bn (-5.6% YoY, +28.6% QoQ). Although Monex, Inc. managed to increase its market share YoY, equity trading by retail investors in the market as a whole was down. Average commission rate increased on temporary factors.

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The average daily equity trading by retail investors on the Tokyo and Nagoya stock exchanges was JPY1.0tn (-13.7% YoY, +13.8% QoQ). Monex, Inc.’s market share of trading by retail investors came to 5.4% (+0.2pp YoY, +0.2pp QoQ), and its average daily stock trading value was JPY54.6bn (-11.0% YoY, +18.4% QoQ). Cash trading value was down 15.4% YoY but up 25.4% QoQ, margin trading value was down 7.1% YoY but up 13.3% QoQ, and the composition ratio of margin trades was 55.5% (+2.3pp YoY, -2.5pp QoQ) (Shared Research estimate based on company data).

In Q3 FY03/20, the number of trading days was 62 (unchanged YoY and QoQ), and Monex, Inc.’s equity trading value was JPY3.4tn (-11.0% YoY, +18.4% QoQ). The average commission rate on stock trading was 0.080% (+0.005pp YoY, +0.007pp QoQ). Commission income during Q3 FY03/20 included a JPY252mn reversal of allowances for Monex Points, and without this impact, the average commission rate on stock trading would have come to 0.073% (-0.002pp YoY, -0.001pp QoQ).

Trading income Net trading income was JPY1.2bn (-7.0% YoY, -2.6% QoQ). According to the Financial Futures Association of Japan, the trading value of OTC forex margin trades during the period from October to December 2019 came to JPY823tn (-14.2% YoY, -12.4% QoQ). Monex, Inc.’s forex trading value totaled JPY14.1tn (+30.6% YoY, -14.2% QoQ), and forex income amounted to JPY844mn (-18.0% YoY, -8.5% QoQ). The rise in trading value is 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 was JPY2.3bn (-11.0% YoY, +2.8% QoQ), reflecting a change in the average balance of margin trading accounts and an accompanying fluctuation in income from margin trading.

Monex, Inc.’s balance of margin trading accounts at the end of Q3 FY03/20 was JPY160.8bn (+1.9% YoY, +5.4% QoQ); the average month-end balance of margin trading accounts declined 10.0% YoY but rose 1.3% QoQ to JPY157.9bn (Shared Research estimate based on company data).

SG&A expenses SG&A expenses totaled JPY5.4bn (-6.9% YoY, +2.2% QoQ), with trading-related expenses of JPY1.3bn (-1.8% YoY, +7.8% QoQ), personnel-expenses of JPY1.1bn (+8.3% YoY, +3.6% QoQ), and system-related expenses (including real estate-related expenses, office and supplies, and depreciation) of JPY2.6bn (-14.7% YoY, -1.9% QoQ).

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. The drop is mainly attributable to the 18.5% decline in depreciation, which came to JPY1.2bn, as the company changed the depreciation period and recorded a JPY1.8bn impairment loss on fixed assets linked to the Japanese equity trading tool TradeStation in Q4 FY03/19.

US segment Overview of Q3 FY03/20 results For Q3 FY03/20 (October–December 2019), the US segment’s operating revenue was JPY5.4bn (-10.4% YoY, -9.4% QoQ), with commission income coming in at JPY2.7bn (-16.4% YoY, -6.0% QoQ), financial income coming in at JPY2.5bn (+6.3% YoY, -8.7% QoQ), and net financial income coming in at JPY1.6bn (+2.1% YoY, -11.3% QoQ). Net operating revenue came to JPY4.5bn (- 11.7% YoY, -8.3% QoQ), operating profit equivalent was JPY287mn (-60.6% YoY, -51.3% QoQ), and pre-tax segment profit amounted to JPY286mn (-56.5% YoY, -50.2% QoQ).

USD-based results On a USD basis, operating revenue was USD50.0mn (-7.8% YoY, -10.1% QoQ). Commission income came to USD24.8mn (- 13.9% YoY, -6.7% QoQ), financial income amounted to USD22.7mn (+9.5% YoY, -9.3% QoQ), and net financial income was USD14.6mn (+5.1% YoY, -11.9% QoQ). Net operating revenue came to USD41.5mn (-9.2% YoY, -9.0% QoQ), operating profit

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equivalent amounted to USD2.6mn (+59.6% YoY, -51.6% QoQ), and pre-tax segment profit was USD2.6mn (-55.5% YoY, -50.6% QoQ).

Commission income Commission income totaled USD24.8mn (-13.9% YoY, -6.7% QoQ) or JPY2.7bn (-16.9% YoY, -6.0% QoQ). Brokerage commissions came to USD17.4mn (-17.7% YoY, -12.1% QoQ); in yen terms, the comparable figure was JPY1.9bn (-20.1% YoY, - 11.4% QoQ). Commission income declined YoY due to the falling VIX volatility index and the impact of launching the commission-free trading plans TS GO and TS SELECT. In Q3 FY03/20, the introduction of TS GO and TS SELECT reduced revenue by approximately USD0.9mn. The company estimates the full-year impact on revenue to be JPY3–4mn in FY03/20.

The VIX volatility index averaged 14.0 (-35.5% YoY, -12.3% QoQ). The average number of commissionable contracts or securities trades at the US segment on trading days (i.e., DARTs) fell 11.2% YoY and 8.1% QoQ to 80,052 (Shared Research estimate based on company data).

Other fees and commission income totaled USD7.4mn (-3.5% YoY, +9.0% QoQ) or JPY809mn (-6.4% YoY, +9.8% QoQ), with the QoQ increase owing to rising revenue from payment for order flow and a higher tool usage fee for non-active accounts.

Financial income Financial income was USD22.7mn (+9.5% YoY, -9.3% QoQ); in yen terms, JPY2.5bn (+6.3% YoY, -8.7% QoQ. Factors contributing to the YoY increase include higher interest income stemming from a rise in customer assets under custody. Factors contributing to the QoQ decrease include lower interest income caused by the lower interest rates. Financial expenses totaled USD8.1mn (+18.4% YoY, -4.2% QoQ) or JPY877mn (+14.8% YoY, -3.5% QoQ). Net financial income came to USD14.6mn (+5.1% YoY, -11.9% QoQ) or JPY1.6bn (+2.1% YoY, -11.3% QoQ). In Q3 FY03/20, interest income from funds invested was roughly USD12.0mn (about USD15.0mn in Q1 FY03/20 and USD14.0mn in Q2 FY03/20).

SG&A expenses SG&A expenses totaled USD38.9mn (-0.8% YoY, -3.2% QoQ) or JPY4.2bn (-3.7% YoY, -2.5% QoQ). Trading-related expenses came to USD12.8mn (-6.6% YoY, -6.1% QoQ) or JPY1.4bn (-9.3% YoY, -5.4% QoQ). Personnel expenses amounted to USD15.4mn (-5.9% YoY, -5.6% QoQ) or JPY1.7bn (-8.6% YoY, -4.9% QoQ). System-related expenses (including real estate- related expenses, office and supplies, and depreciation) were USD8.2mn (+12.5% YoY, +4.1% QoQ) or JPY895mn (+9.3% YoY, +4.9% QoQ).

Trading commissions payable and exchange membership fees as well as personnel expenses declined YoY and QoQ, with the fall in trading commissions payable and exchange membership fees coming from a decrease in trading volume. Meanwhile, depreciation increased YoY due to the adoption of IFRS 16.

Crypto Asset segment Overview of Q3 FY03/20 results For Q3 FY03/20 (October–December 2019), the Crypto Asset segment’s operating revenue was JPY481mn (-12.5% YoY, -40.0% QoQ), commission income was JPY47mn (+80.8% YoY, -39.7% QoQ), and net trading income was JPY435mn (-16.7% YoY, - 39.9% QoQ). Pre-tax segment loss came to JPY127mn (pre-tax segment loss of JPY324mn in Q3 FY03/19 and pre-tax segment profit of JPY9mn in Q2 FY03/20).

The Crypto Asset segment saw a YoY and QoQ decline in operating revenue, as net trading income from the cryptocurrency exchange fell due to the drop in cryptocurrency trading value. Meanwhile, the segment posted a YoY increase in pre-tax profit despite the lower revenue, thanks to cost cuts that brought SG&A expenses down to JPY583mn (-49.3% YoY, -27.6% QoQ).

Commission income and net trading income Commission income included withdrawal and remittance fees and commissions from the cryptocurrency exchange. Net trading income, including income from buying and selling on the cryptocurrency exchange, declined YoY and QoQ due to the drop in

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the cryptocurrency trading value in Japan. According to jpbitcoin.com, a Japanese information site on bitcoins, the cash trading value of bitcoin in Japan was JPY18.4tn during the period from September to December 2019 (-46.9% YoY, +23.8% QoQ).

Customer account trends As of the end of December 2019, the number of registered users on Coincheck totaled 1.98mn (1.73mn at end-December 2018, 1.93mn at end-September 2019), while the number of accounts of verified users was 0.94mn. Customer assets under custody totaled JPY66.9bn (-6.5% YoY, -14.9% QoQ).

SG&A expenses SG&A expenses totaled JPY583mn (-49.3% YoY, -27.6% QoQ). Personnel expenses and system-related expenses declined YoY thanks to office consolidation and a reduction in personnel, offsetting the rise in advertising expenses along with the addition of new accounts. The decline in system-related expenses is attributable to various system development activities winding down at Coincheck, following the completion of its registration as a virtual currency exchange service provider under the Payment Services Act in January 2019. The decrease in personnel expenses owed in part to the reduction of phone operators on temporary contracts hired by the company respond to phone calls during the registration process. Cost savings also came from officer mergers. On a quarterly basis, SG&A expenses continued falling from JPY1.4bn in Q4 FY03/19 to JPY1.1bn, JPY805mn, and JPY583mn from Q1 to Q3 FY03/20, respectively. However, the company believes the reduction in SG&A expenses at Coincheck tailed off in Q3 FY03/20, and it expects expenses to start rising in tandem with earnings.

Pre-tax segment loss Pre-tax segment loss was JPY127mn. On a YoY basis, the Crypto Asset segment posted higher profit despite lower revenue. On a QoQ basis, pre-tax segment profit only dropped JPY136mn even though revenue declined by JPY321mn.

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.

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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).

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.

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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 Securities Rakuten Matsui Au Kabucom Securities Securities Securities Stock lending rate on negotiable 1.10% 1.10% 1.10% 2.00% 1.50% margin transactions

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 (PTS) 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.

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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 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

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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 October 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.

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 TS GO 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 TS GO 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 TS GO 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 TS GO 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 TS GO 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 TS GO 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 and ETF trading and JPY6.5bn from futures and options trading. The company estimates that the introduction of its new TS GO 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 TS GO account before they can take advantage of the commission-free trades.

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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.

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.

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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.

Q2 FY03/20 (July–September 2019) results

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

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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).

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 JPY922mn, 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).

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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.

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

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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% 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

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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.

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.

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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.

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.

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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.

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.

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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 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.

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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 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

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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).

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

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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 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

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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 account s (+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).

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.

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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.

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.

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Income statement

Income statement FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 (JPYmn) J-GAAP IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS Operating revenues 25,227 30,569 36,090 54,722 50,975 54,271 45,831 53,635 52,175 53,226 YoY 12.1% - 18.1% 51.6% -6.8% 6.5% -15.6% 17.0% -2.7% 2.0% Financial expenses 2,638 1,682 2,320 4,672 5,766 4,629 3,979 4,480 4,758 5,236 Net operating revenues 22,589 28,888 33,769 50,051 45,209 49,642 41,852 49,155 47,417 47,990 YoY 13.4% - 16.9% 48.2% -9.7% 9.8% -15.7% 17.4% -3.5% 1.2% SG&A expenses 17,848 26,060 30,359 34,981 37,143 41,395 40,578 39,853 44,690 42,835 SG&A as % of operating revenues 70.7% 85.2% 84.1% 63.9% 72.9% 76.3% 88.5% 74.3% 85.7% 80.5% Operat ing profit equivalent 4,741 2,827 3,410 15,069 8,066 8,247 1,274 9,302 2,727 5,155 YoY 6.3% - 20.6% 341.9% -46.5% 2.2% -84.6% 630.1% -70.7% 89.0% OPM 18.8% 9.2% 9.4% 27.5% 15.8% 15.2% 2.8% 17.3% 5.2% 9.7% Other revenue 1,089 805 6,650 2,364 292 670 3,273 588 1,306 154 Other expenses 2,555 965 3,062 538 2,244 3,817 3,476 1,258 2,243 1,179 Pre-tax profit 3,268 2,668 6,998 16,895 6,115 5,100 1,071 8,631 1,790 4,131 YoY -18.2% - 162.3% 141.4% -63.8% -16.6% -79.0% 705.9% -79.3% 130.8% Pre-tax profit margin 13.0% 8.7% 19.4% 30.9% 12.0% 9.4% 2.3% 16.1% 3.4% 7.8% Income taxes 1,272 1,574 3,091 6,539 2,621 1,584 910 2,052 761 1,310 Implied tax rate 38.9% 59.0% 44.2% 38.7% 42.9% 31.1% 85.0% 23.8% 42.5% 31.7% Profit 1,996 1,094 3,907 10,356 3,494 3,516 161 6,579 1,029 2,820 YoY -47.0% - 257.1% 165.1% -66.3% 0.6% -95.4% - -84.4% 174.1% Profit margin 7.9% 3.6% 10.8% 18.9% 6.9% 6.5% 0.4% 12.3% 2.0% 5.3% Profit attrib. to owners of the parent 1,992 1,028 3,901 10,354 3,494 3,554 298 6,730 1,181 3,011 YoY -47.2% - 279.5% 165.4% -66.3% 1.7% -91.6% - -82.5% 155.0% Profit margin 7.9% 3.4% 10.8% 18.9% 6.9% 6.5% 0.7% 12.5% 2.3% 5.7% 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.

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Balance sheet

Balance sheet FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 (JPYmn) IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS Assets Cash and cash equivalents 34,663 39,788 51,193 85,442 68,540 61,902 77,900 83,884 154,146 132,561 Cash segregated as deposits 175,202 291,899 349,837 426,719 525,567 497,442 552,028 543,438 566,220 620,222 Trading securities and other 1,833 2,430 4,078 2,458 4,148 2,945 1,697 1,618 2,543 4,516 Derivative assets 954 1,133 753 11,326 13,432 19,153 13,443 15,424 10,895 14,380 Inventories ------3,056 2,932 Iinvestments in seucirites 13,181 22,144 18,551 8,390 8,176 3,707 3,611 3,123 3,914 5,447 Margin transaction assets 96,602 90,795 149,487 178,230 175,637 149,236 147,653 192,224 138,836 107,207 Loans receivable secured by securities - 15,339 44,583 152,382 159,969 31,628 34,250 21,389 42,064 32,748 Other financial assets 21,282 23,654 22,950 28,990 46,003 64,272 49,049 58,837 54,202 47,943 Tangible fixed assets 1,150 1,759 1,485 1,579 2,408 2,457 2,062 2,122 2,456 4,921 Intangible assets 11,055 35,916 37,394 41,558 48,807 53,053 53,751 49,851 47,698 46,006 Equity method investments 808 257 826 861 1,136 1,125 363 295 306 276 Deferred tax assets 2,031 105 61 247 20 8 2 13 289 370 Other assets 332 1,510 995 1,089 1,398 1,187 967 1,301 1,226 3,404 Total assets 359,093 526,729 682,193 939,270 1,055,242 888,116 936,776 973,520 1,027,849 1,022,934

Liabilities

Derivative liabilities 2,103 2,599 7,604 9,047 12,159 7,178 5,828 5,340 4,311 3,256 Margin transaction liabilities 31,637 27,826 39,745 36,308 46,125 33,006 40,664 29,683 32,793 30,044 Loans payable secured by securities 26,603 24,776 67,661 183,765 195,521 71,974 77,504 78,203 101,028 72,349 Deposits received 93,842 185,797 231,164 287,385 368,656 350,904 324,672 324,256 358,176 393,344 Guarantee deposits received 78,707 118,058 131,535 167,039 184,850 170,666 257,753 254,647 249,544 282,006 Bonds and loans payable 49,768 82,200 113,381 159,125 150,418 154,261 138,133 191,010 190,641 147,941 Other financial liabilities 1,415 1,794 2,099 4,280 4,958 5,868 6,622 4,545 4,284 8,068 Provisoins 48 122 88 156 158 2,556 166 148 262 208 Income taxes payable 582 391 2,072 5,629 230 1,505 389 2,386 266 556 Deferred tax liabilities 112 6,351 5,418 3,810 3,732 3,161 2,401 1,524 1,862 2,188 Other liabilities 281 1,009 1,726 2,026 1,504 1,014 958 1,284 4,540 5,933 Total liabilities 285,098 450,923 602,492 858,569 968,310 802,094 855,090 893,027 947,707 945,909 Net assets Capital stock 10,394 10,394 10,394 10,394 10,394 10,394 10,394 10,394 10,394 10,394 Capital surplus 42,091 40,521 40,521 40,510 40,510 40,510 40,547 40,510 40,510 40,291 Treasury stock ------206 -313 -1,032 Retained earnings 20,246 18,808 22,079 22,856 23,991 22,380 20,209 21,492 18,980 18,011 Other components of equity 1,071 5,836 6,673 6,941 12,038 12,532 10,222 8,139 9,424 8,547 Equity attributable to owners of the parent 73,802 75,558 79,667 80,701 86,932 85,816 81,372 80,329 78,994 76,210 Non-controlling interests 193 248 35 - - 207 315 164 1,148 815 Total equity 73,995 75,806 79,702 80,701 86,932 86,022 81,687 80,493 80,142 77,024 Total interest bearing debt 49,768 82,200 113,381 159,125 150,418 154,261 138,133 191,010 190,641 147,941 Net debt 15,105 42,412 62,188 73,683 81,878 92,359 60,233 107,126 36,495 15,380 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 (13.0% of total assets at end FY03/20), deposits and cash segregated as deposits (60.6%), margin transaction assets (10.5%), and intangible assets (4.5%).

The company’s assets fluctuate depending on trends in customers’ trading activities, which will affect customer assets under 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.

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.

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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) FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS Margin transaction assets 96,602 90,795 149,487 178,230 175,637 149,236 147,653 192,224 138,836 107,207 Loans on margin transactions 93,659 85,567 145,277 176,203 165,630 145,647 138,500 188,840 127,743 97,744 Cash collateral pledged for securities borrowing on margin 2,943 5,228 4,210 2,026 10,007 3,589 9,154 3,384 11,093 9,463 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.

Breakdown of other financial assets

(JPYmn) FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS Ot her financial asset s 21,282 23,654 22,950 28,990 46,003 64,272 49,049 58,837 54,202 47,943 Guarantee deposits 6,435 12,615 11,734 14,137 25,159 27,721 30,404 40,137 33,798 33,216 Accrued income 2,423 2,890 3,027 2,969 3,335 3,382 3,788 4,140 4,382 3,044 Short-term loans 10,738 6,698 7,285 9,025 13,498 29,980 9,725 11,674 11,704 8,594 Allowance for doubtful accounts -97 -446 -314 ------Others 1,457 1,897 1,218 2,859 4,011 3,190 5,132 2,886 4,318 4,885 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

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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 FY03/19 broke down by region into Japan JPY7.6bn (unchanged YoY), US JPY8.9bn (versus JPY8.6bn in FY03/18), and China JPY426mn (versus JPY409mn in FY03/18).

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 FY03/19 included the customer base of TradeStation Group (JPY2.3bn in FY03/19 versus JPY2.4bn in FY03/18) and technology-related assets (JPY6.6bn in FY03/19 versus JPY7.0bn in FY03/18). These intangible assets are written off over their working life. The remaining depreciation period was 10 years at end FY03/19.

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.

Breakdown of intangible assets

(JPYmn) FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS Int angible asset s 11,055 35,916 37,394 41,558 48,807 53,053 53,751 49,851 47,698 46,006 Goodw ill 8,048 18,453 17,138 18,027 18,112 17,296 17,043 16,607 16,990 16,952 Ident ifiable int angible asset s - 13,898 14,912 15,109 15,841 13,805 12,624 11,053 10,499 9,269 Others 3,007 3,566 5,344 8,423 14,854 21,951 24,084 22,191 20,209 19,784 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 (41.6% of total liabilities at end FY03/20), guarantee deposits received (29.8%), loans payable secured by securities (7.6%), and bonds and loans payable (15.6%).

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) FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS Margin t ransact ion liabilit ies 31,637 27,826 39,745 36,308 46,125 33,006 40,664 29,683 32,793 30,044 Loans payable on margin transactions 11,693 2,757 14,847 22,607 13,861 15,178 13,113 13,242 3,573 970 C ash receiv ed for securities lending on margin trading 19,943 25,069 24,897 13,700 32,264 17,828 27,551 16,441 29,220 29,074 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

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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) FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS Corporate bonds and loans payable 49,768 82,200 113,381 159,125 150,418 154,261 138,133 191,010 190,641 147,941 Loans payable 49,768 81,939 103,395 142,335 133,742 137,535 120,191 167,380 163,622 117,239 Corporate bonds - 261 9,986 16,790 16,676 16,726 17,942 23,630 27,018 30,703 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.

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) FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS Corporate bonds and loans payable 49,768 82,200 113,381 159,125 150,418 154,261 138,133 191,010 190,641 147,941 Loans payable 49,768 81,939 103,395 142,335 133,742 137,535 120,191 167,380 163,622 117,239 Corporate bonds - 261 9,986 16,790 16,676 16,726 17,942 23,630 27,018 30,703 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) FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS Retained earnings 20,246 18,808 22,079 22,856 23,991 22,380 20,209 21,492 18,980 18,011 Net income 1,992 1,028 3,901 10,354 3,494 3,554 298 6,730 1,181 3,011 Dividends -1,794 -939 -629 -4,064 -2,359 -4,003 -1,468 -1,755 -2,413 -1,409 T ransfer t o capit al surplus - -1,528 - -5,514 - -1,162 -1,000 -3,727 -1,664 -2,563 Others 1,842 ------36 -11 -8 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

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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) FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS Other components of equity 1,071 5,836 6,673 6,941 12,038 12,532 10,222 8,139 9,424 8,547 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 - 485 3,789 6,138 10,255 8,476 8,180 6,939 7,997 7,171 Sharedjt of other t i fcomprehensive i ti income of equity method investments, and - - 51 74 69 86 72 101 33 15 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.

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Cash flow statement

Cash flow statement FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19 FY03/20 (JPYmn) J-GAAP IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS Cash flow s from operat ing act ivit ies (1) 4,288 3,931 -20,510 -8,256 -249 766 43,715 -38,701 53,834 34,454 Pre-tax profit 3,268 2,668 6,998 16,895 6,115 5,100 1,071 8,631 1,790 4,131 Depreciat ion and amort izat ion 1,319 2,406 3,116 3,441 3,942 4,911 7,094 8,117 8,392 8,122 C hange in margin transaction assets and liabilities 7,284 1,996 -46,234 -32,180 12,410 13,283 9,241 -55,552 56,498 28,880 Change in short-term loans receivable 7,877 9,452 354 -1,032 -2,720 -17,148 20,141 -2,514 467 2,806 Income taxes paid 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) -2,087 -25,361 401 5,960 -8,602 -5,934 -8,301 -5,872 22,763 -7,068 Purchase of investments in securities -4,095 -9,216 -20,342 -12,771 -6,235 -80 -282 -491 -419 -376 Proceeds from sales and redemption of securities 2,197 11,205 25,038 23,458 7,159 5,386 1,215 362 237 48 Purchase of tangible fixed assets -602 -524 -517 -765 -1,233 -706 -673 -884 -1,230 -841 Purchase of int angible fixed asset s -1,207 -1,801 -2,958 -4,026 -8,301 -10,051 -8,603 -4,969 -6,265 -5,548 Proceeds from sales of inv estments in associates 41 -29,053 -905 - - - - - 30,695 - Cash flow s from financing act ivit ies 2,232 26,281 30,395 35,998 -11,968 -673 -18,462 49,870 -5,909 -48,399 Change in short-term debt 5,373 18,200 23,834 -14,403 -39,331 11,741 -1,372 47,800 -40,816 -26,730 Proceeds from issuance of bonds payable -4,508 - - - - - 996 8,483 1,459 4,290 Change in long-term debt - 14,258 7,214 60,016 29,721 -7,500 -15,898 -630 36,919 -19,600 Purchase of treasury stock - -3,098 - -5,514 - -1,162 -1,000 -4,030 -2,000 -3,389 Dividends paid -1,792 -938 -629 -4,053 -2,358 -3,997 -1,468 -1,754 -2,408 -1,406 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.

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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 au Kabucom 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.

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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.

In the wake of the move by major online brokers in the US to commission-free trading in October 2019, Monex changed its own direction in Q3 FY03/20 and began working to shift its business model from a brokerage service-based model to an asset management service-based model. Under the new business model, the Monex Group will be focusing less on generating brokerage commissions and more on receiving compensation for services to support the asset building/asset management of its customers.

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

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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 Asset Management, Inc.)

Apr. 2018 Coincheck, Inc. becomes wholly owned subsidiary

Jan. 2019 Coincheck, Inc. completes registration with the Kanto Finance Bureau to operate a cryptocurrency exchange pursuant to laws and regulations concerning financial settlements.

Jan. 2020 Establishes investment advisory firm Japan Catalyst, Inc.

News and topics February 2020 On February 28, 2020, the company announced that it would acquire all of the shares of Monex-Saison-Vanguard Investment Partners Inc., making it a wholly owned subsidiary.

The company has concluded separate share transfer agreements with Credit Saison Co., Ltd. and Raisonnable, Inc. (a wholly owned subsidiary of The Vanguard Group, Inc.) to acquire all of the shares of Monex-Saison-Vanguard Investment Partners owned by these two companies. After the share transfer, Monex-Saison-Vanguard Investment Partners will be a wholly owned subsidiary of Monex Group. The transaction will not have a material impact on the company’s consolidated results.

Upon completing the acquisition of all shares, the company will change the name of Monex-Saison-Vanguard Investment Partners to Monex Asset Management, Inc., effective April 1, 2020.

Reasons for acquisition of shares Explaining the move, the company said that it had already been working towards transitioning from a brokerage-model to an asset-management model where the aim was to increase the customer assets under management, and that developing Monex- Saison-Vanguard Investment Partners into one of its core companies would further enhance its ability to support customers with their asset management and asset creation needs.

Overview of Monex-Saison-Vanguard Investment Partners Inc. (as of February 2020)

Name: Monex-Saison-Vanguard Investment Partners, Inc. ▷ Date of establishment: August 2015 ▷ Shareholders: Monex Group, Inc. (51.01%), Credit Saison Co., Ltd. (44.00%), Raisonnable, Inc. (4.99%) ▷

November 2019 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 TS GO, a service offering commission-free trades for stocks, options, and ETFs for customers trading on its mobile or online platforms (prior to the launch of TS GO, 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 online 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).

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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

Major shareholders

Shares held Shareholding Top shareholders ('000) ratio The Shizuoka Bank, Ltd. 67,797 26.48% Matsumoto, Inc. 17,243 6.73% Oki Matsumoto 7,529 2.94% The Master Trust Bank of Japan, Ltd. (Trust account) 7,215 2.81% Mizuho Securities Co., Ltd. 6,143 2.39% Recruit Holdings Co., Ltd. 5,720 2.23% Credit Saison Co., Ltd. 3,712 1.45% Kyoko Kudo 3,455 1.34% JP Morgan Chase Bank 385151 3,181 1.24% Japan Trustee Services Bank, Ltd. (Trust account 5) 3,042 1.18% Total shares issued 125,037 48.84% Source: Shared Research based on company data As of March 31, 2020

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

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.

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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

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.

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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

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