Integrated Report 2018 Year ended March 31, 2018 Sustainability & Innovation Contents 2 Corporate Summary Forward-Looking Statements This Integrated Report contains forward-looking statements 2 To Our Stakeholders about the Daiwa Securities Group. You can identify these 4 Our DNA Underpinning Sustainable Growth in Concert with Society statements by the fact that they do not relate strictly to historic 6 Daiwa Securities Group Value Creation Model or current facts. These statements discuss future expectations, 8 Corporate History identify strategies, contain projections of results of operations 10 FY2017 Topics or of financial condition, or state other “forward-looking” information. These statements are based on currently available 12 Business Strategy information and represent the beliefs of the management of the Daiwa Securities Group. These statements are subject to 12 Message from the CEO numerous risks and uncertainties that could cause the Daiwa 20 Message from the CFO Securities Group’s actual results, performance, achievements 22 Daiwa Securities Group Snapshot or financial condition to differ materially from those described 23 SDGs Feature or implied in the forward-looking statements. The Daiwa Securities Group undertakes no obligation to publicly update 23 Initiatives Aimed at Securing the Sustainable Growth of Daiwa Securities Group any forward-looking statements after the date of issuance of and Society this report. These potential risks and uncertainties include, but are not limited to: competition within the financial services 24 Passion for PROSPERITY industries in Japan and overseas, our ability to adjust our 27 Passion for PEOPLE business focus and to maintain profitable strategic alliances, 34 Passion for PARTNERSHIP volatile and sudden movements in the international securities 38 Passion for the PLANET markets, and foreign exchange and global economic situations 41 Passion for PEACE affecting the Daiwa Securities Group. “FY2017” refers to the 42 Special Dialogue: Creating the Future through SDGs fiscal year ended March 31, 2018, and other fiscal years are referred to in a corresponding manner. 46 Strategies by Division 47 Daiwa Securities Group Business Divisions ESG Index Selection 48 Retail Division Daiwa Securities Group Inc. has been selected for inclusion in 53 Wholesale Division the Dow Jones Sustainability World Index, the FTSE4Good 57 Asset Management Division Index, the FTSE Blossom Japan Index, the 2018 Bloomberg 61 Investment Division Gender-Equality Index and the MSCI Japan Empowering 62 Other Women Index. 63 Special Dialogue: The Securities Business of the Future and Innovation 68 Strategic IT Utilization and Cybersecurity Initiatives 69 Management Systems 70 Message from the Chairman of the Board 72 Medium-Term Management Plan “Passion for the Best” 2020 Formulation Process 74 Special Discussion between Three Committee Chairpersons 78 Directors (Members of the Board) 80 Corporate Executive Officers 81 Corporate Governance System 86 Risk Appetite Framework 87 Risk Management 92 IT Strategy and the Management of Systemic Risk 93 Compliance 94 Disclosure and Dialogue with Investors 95 CSR Management 96 Role and Social Responsibilities of the Financial Services 98 Provision of Quality Service to Customers 99 Working to Incorporate Customer Voices 99 Education Activities in Economics and Finance 100 Dissemination of Analysis and Proposals on the Economy, Society, and Investment Information 101 Financial Section Participation in International Initiatives In January 2010, the Daiwa Securities Group became the first 102 11-Year Financial Summary securities company in Japan to sign the United Nations Global 104 Non-Financial Information Highlights (Personnel/Social Contribution Related) Compact (UNGC). The Group is also a signatory to the Carbon 106 Twelve-Quarter Financial Summary Disclosure Project (CDP) and the Principles for Responsible 108 Management’s Discussion and Analysis Investment (PRI). 118 Consolidated Financial Statements 218 Other Information 218 Daiwa Securities Group Inc. Corporate Data 218 Stock Information 219 Officers 220 Domestic Group Companies 221 Overseas Group Companies Daiwa Securities Group Integrated Report 2018 Editorial Policy Publication of Daiwa Securities Group Integrated Report 2018 Daiwa Securities Group has formulated and published the corporate principle which consists of four components: “building trust,” “placing importance on personnel,” “contributing to society,” and “maintaining healthy earnings results.” This corporate principle is the bedrock from which we aim to increase corporate value over the longer term, by managing operations with an eye on creating value for our stakeholders, while fulfilling our social responsibilities as a major player in capital markets. Based on this philosophy, the Group performs its social mission of contributing to the development of society and the economy through participation in financial and capital markets, by bringing together the fund management needs of individuals, corporations and institutional investors and the operating fund procurement needs of companies, national and local governments, public institutions, and international institutions. In carrying out this mission, in order to deepen understanding of the corporate activities of the Group, and together with all of our stakeholders to generate social value, we have started to publish an integrated report annually as a tool for dialogue. This fiscal year’s report has been restructured so as to highlight the unique values and business model that the Group has built up over the 116 years of its history. In addition, together with providing a briefing on the new Medium-Term Management Plan launched in April 2018, this report features an introduction of our efforts with regard to sustainable development goals (SDGs) that we are working on so as to contribute to the sustainable development of society as well as the sustainable growth of the Group, as is stated in our corporate philosophy. Please be sure to read through this report, and we would appreciate hearing your opinions. Information about our Corporate Social Responsibility initiatives is available on the Group’s CSR website and in the annual CSR Report, which can be downloaded in PDF format from the CSR website. Seiji Nakata President and CEO CSR website: http://www.daiwa-grp.jp/english/csr/index.html Daiwa Securities Group Inc. CSR Report: http://www.daiwa-grp.jp/english/csr/report/archives/index.html Cycle of Shared Value Creation Stakeholders of Daiwa Securities Group Customers Shareholders/ Employees Community and creditors society etc. Creation of economic value Initiatives for the “resolution of social issues” Develop “new customer needs” Creation of social value Contribute to the realization of a prosperous society and an enriched lifestyle Daiwa Securities Group Integrated Report 2018 01 To Our Stakeholders 02 Daiwa Securities Group Integrated Report 2018 Daiwa Securities Group Integrated Report 2018 Corporate Summary Our hope is to create an affluent future together with all of our stakeholders. FY2017 was an important year for Daiwa Securities turmoil in US politics. That said, overall, the market Group, marking the 115th anniversary of our founding. environment was solid, with concerns receding over Under our new management system, this year also the political climate in Europe and optimism growing served as a fresh start founded on the strategic pillars over economic policies in Japan and the US. Although of having the industry’s highest quality and being an the Nikkei Stock Average hit the 24,000 mark in integrated securities group with a hybrid business January 2018, with the sharp rise in US long-term model that leverages the benefits of being independent. interest rates in February, Japanese shares tumbled. The Retail Division adopted a new sales promotion Against this backdrop, Daiwa Securities Group strategy espousing a bottom-up sales approach with reported net operating revenues of ¥505.3 billion greater emphasis on the customer's perspective, and and ordinary income of ¥155.6 billion on a its sales staff is now devoting more time in proposals consolidated basis for FY2017, along with profit that capture the needs of customers. Along with attributable to owners of parent of ¥110.5 billion. consultant positioning targeted at responding to In FY2018, we initiated our New Medium-Term more finely segmented needs and optimizing sales Management Plan "Passion for the Best" 2020. As channels by branch strategies, the Division further Japan enters a time when more people will live to the bolstered its lineup of products and services designed age of 100 and a digital transformation spreads from the customer's perspective. Meanwhile, the throughout business and society, we foresee major Wholesale Division served as the lead manager for changes in the operating environment surrounding multiple large-scale underwriting deals that were the Group that will serve as opportunities. Based on representative of the fiscal year, resulting in our the strategic policies of delivering high-value-added selection as the House of the Year in the DEALWATCH solutions through the industry’s highest quality which AWARDS 2017 overall category. leverages the strengths of the Group, and delivering An integrated securities group with a hybrid new value as an integrated securities group with a business model involves actively working to diversify hybrid business model, we are aiming to be a financial our business portfolio,