Annual Report and Financial StatementsFor the year ended 31 March 2016 Company registration number: 05145017
Annual Report 2016
1
CMC Markets plc
Annual Report and Financial Statements
For the year ended 31 March 2016
2
Annual Report 2016
Table of contents
3
Table of contents
Our purpose, goals, objectives and enablers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Chairman’s statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
CEO report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Company history . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Strategic report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Business review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Corporate social responsibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Financial review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Governance report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Chairman’s letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Compliance with UK corporate governance code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
The Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Audit and Risk Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Nomination and Remuneration Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Directors remuneration report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Regulated entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Directors’ report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
Statement of Directors’ Responsibilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
Independent auditors’ report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
Financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
Consolidated income statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
Consolidated statement of comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
Consolidated and parent company statements of financial position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
Consolidated and parent company statements of changes in equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
Consolidated and parent company statements of cash flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
Notes to the financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
Corporate information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158
CMC Markets plc Our purpose, goals, objectives and enablers
Annual Report 2016
4
5
Our purpose
To make the financial markets truly accessible for investors
Our strategic goal
To increase shareholder value by delivering sustainable and profitable revenue growth
Our strategic objectives
Increase the client
base in established
markets
Expand into new
markets and grow
developing regions
Maintain a strong
pipeline of
new products
Implement digital
solutions to improve
efficiencies across the
client journey
Establish CMC as
a key player in the
Institutional sector
Business enablers
Client service
Competitive
product offering
Technology
and operational
excellence
Trading risk
management
Financial strength
Our people
Shareholder return
Earnings per share
Dividends
CMC Markets plcOur purpose, goals, objectives and enablers 6
“2016 was another strong year for the Group, achieving continuing growth
Delivery of shareholder value and returns
7
in underlying profit before tax and successfully listing on the London Stock
Exchange. Through our focus on innovation we have delivered new products
and platform features. This is underpinned by our focus on client service.”
Peter Cruddas
Chief Executive Officer
Revenue growth and operating effectiveness
Net operating income
Profit before tax and underlying PBT
180
160
140
120
100
80
60
40
20
0
122.0
143.6
169.4
80
70
60
50
40
30
20
10
0
62 .4
53 .4
51 .9
43 .5
32 .2
32 .2
40%
35%
30%
25%
20%
Profit after tax
Dividend per share and earnings per share
50
40
30
20
10
24.0
0
42.5
34.7
)
e
c
n
e
p
(
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s
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s
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12
10
8
6
4
2
0
5 .7
4 .3
1 .8
8 .9
16
11
6
1
-4
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a
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n
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g
s
p
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r
s
h
a
r
e
(
p
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n
c
e
)
2014
2015
2016
2014
2015
2016
Profit after tax (£m)
Dividend1 per share
Special dividend per share
Basic earnings per share
• Net operating income up £25.8 million (18%) at £169.4 million driven by continuing focus on strategic initiatives
• Profit before tax up £9.9 million (23%) at £53.4 million and underlying profit before tax up 20% at £62.4 million
• Profit before tax margin up 1.2% at 31.5%, underlying profit before tax margin up 0.6% to 36.8%
• Active clients up 7,026 (14%) to 57,329 and revenue per active client up £112 (4%) to £2,828
• Value of client trades up 27%, to £2,071 billion
• Earnings per share up 22% to 15.1 pence, underlying earnings per share up 23% to 18.0 pence
2014
2015
2016
2014
2015
2016
Summary income statement and earnings per share
Net operating income1 (£m)
Underlying profit before tax (£m)2
Profit before tax (£m)
Underlying PBT margin
PBT margin
Client value generation and client quality
Active clients and revenue per active client
Value of trades and number of trades
60,000
55,000
50,000
s
t
n
e
i
l
c
e
v
ti
c
A
45,000
48,006
50,303
40,000
3,000
2,750
2,500
2,250
2,000
R
e
v
e
n
u
e
p
e
r
a
c
ti
v
e
c
l
i
e
n
t
(
£
)
57,329
)
n
b
£
(
s
e
d
a
r
t
f
o
e
u
a
V
l
2,500
2,000
1,500
1,000
500
0
1,351
1,626
2,071
80
60
40
20
0
N
u
m
b
e
r
o
f
t
r
a
d
e
s
(
m
)
2014
2015
2016
2014
2015
2016
Active clients3
Revenue per active client4
Value of trades5
Number of trades
¹ Net operating income represents revenue net of rebates payable to introducing partners who are not themselves trading counterparties and spread betting levies
² Underlying figures represent PBT before exceptional items
³ Active clients represent those individual clients who have traded with or held CFD or spread bet positions with CMC Markets on at least one occasion during the
financial year
4 Net revenue generated from CFD and spread bet active clients
5 Value of client trades represents the notional value of trades
£m
Net operating income
Other income
Operating expenses
EBITDA
Analysed as:
Underlying EBITDA
Net exceptional items2
EBITDA
Depreciation and amortisation
Finance costs
Profit before tax
Analysed as:
Underlying profit before tax
Net exceptional items2
Profit before tax
Underlying PBT margin
PBT margin
Profit after tax
Underlying profit after tax3
Pence
Basic EPS
Underlying Basic EPS
2016
169 .4
3 .1
(112.3)
60 .2
69.2
(9.0)
60 .2
(6.0)
(0.8)
53 .4
62.4
(9.0)
53 .4
36.8%
31.5%
42 .5
50 .7
2016
15 .1
18 .0
2015
143 .6
-
(92.3)
51 .3
59.7
(8.4)
51 .3
(6.9)
(0.9)
43 .5
51.9
(8.4)
43 .5
36.2%
30.3%
34 .7
40 .9
2015
12 .4
14 .6
Variance
Variance %
25 .8
3 .1
(20.0)
8 .9
9.5
(0.6)
8 .9
0.9
0.1
9 .9
10.5
(0.6)
9 .9
0.6%
1.2%
7 .8
9 .8
18%
-
(22)%
17%
16%
(6)%
17%
13%
14%
23%
20%
(6)%
23%
-
-
22%
24%
Variance
Variance %
2 .7
3 .4
22%
23%
1 Dividend paid/proposed relating to the financial year
2 Consists of £3.1million exceptional income and £12.1million exceptional costs
3 Based on implied tax payable excluding exceptional items
CMC Markets plcAnnual Report 2016HighlightsHighlights
8
Chairman’s statement
9
will be developed over the coming years. As a recently listed
business, there are a number of items that will be addressed to
ensure we are fully compliant with the UK Corporate
Governance Code (“the Code”).
The intention is to put all directors up for re-election at the
2016 Annual General Meeting in compliance with the Code.
In the past we have operated a combined Nomination and
Remuneration Committee, which operated well during the year.
Following the listing we have established separate committees.
Further detail around remuneration can be found in the
Nomination and Remuneration Report on page 78.
In addition we have also established separate audit and risk
committees following listing; previously these were also
combined.
Our people
On behalf of the Board I would like to thank all of our staff for
their hard work once again. Their effort and commitment has
delivered a record level of profit after tax as well as achieving a
successful London Stock Exchange listing. We have very
talented people across all areas of the Group and this was clear
to me as we progressed through the listing process.
Dividends
CMC Markets is a highly cash generative business, and as the
Group’s client activity grows, an increasing amount of liquidity is
required in the Group to hedge client trades. In order to fully
meet our growth aspirations our dividend policy is to pay 50%
of underlying profit after tax. The Board’s view is that this allows
the Group to retain sufficient cash to meet its growth
aspirations.
However, as a Board we have no desire to build up funds
unnecessarily and will return surplus funds to shareholders
where possible, as evidenced by the £5.0 million special
dividend that was paid earlier in the financial year.
In line with policy the dividend for the full year will be 8.93
pence per share, so following an interim dividend of 3.57 pence
per share the Board is recommending a final dividend of 5.36
pence per share. Including the special dividend of 1.79 pence
per share paid at the half year this represents a total dividend of
10.72 pence per share.
Outlook
2016 has been a key year in the history of CMC Markets; as
well as the listing, we have opened new offices and launched
new products, and we have a clear strategy to deliver future
growth and shareholder value.
Simon Waugh
Chairman
7 June 2016
I am very pleased to report another strong year for the Group
and the first set of results since we successfully listed on the
London Stock Exchange in February 2016. The listing is a
significant milestone in the Group’s history and the beginning of
a new chapter, which I am very proud to be a part of.
Over the last three years we have had a clear strategy to
provide our clients with the best trading platform, superior
service and competitive pricing, with a strong focus on
innovation. This strategy has again driven a strong performance
by the Group. Net operating income is up 18% and underlying
profit before tax at £62.4 million is up 20% on the prior year.
Underlying earnings per share is 18.0 pence, an increase of
23% from the prior year.
Our award-winning Next Generation trading platform has
continued to be developed with new features and tools, and we
are adding new products. ‘Countdowns’, was successfully
launched during the year and our binaries offering was
launched in April 2016.
Governance and the Board
We are committed to the highest levels of corporate
governance, and as we prepared for life as a listed company this
important area was further strengthened by a number of
appointments to the Board.
After extensive searches, Manjit Wolstenholme joined as Senior
Independent Non-Executive Director. Malcolm McCaig and
James Richards joined as Non-Executive Directors. Manjit,
Malcolm and James bring a wealth of experience to the Board
and I look forward to working with them during this exciting
time.
John Jackson left the Board in June 2015 after nine years as a
Non-Executive and I would like to take this opportunity to thank
John for his valuable input and assistance to the Board during
his time in the role.
As a Board we are committed to continually reviewing our
performance and effectiveness. During the course of the
coming year each member of the Board will be undertaking a
questionnaire-based analysis to evaluate performance and this
CMC Markets plcChairman’s statement CEO report
10
11
2016 has been a landmark year in the history of CMC Markets
with record profit after tax and a public listing on the London
Stock Exchange. Having founded the business 26 years ago with
just a desk, a telephone and £10,000, I feel immensely proud of
what has been achieved.
growing, producing profits and paying dividends, and we are one
of those companies”. We successfully listed on 5 February 2016
in London. As such we were one of the few companies to go
public during the first quarter of 2016, which is a reflection of
the high quality of the business.
The whole experience of becoming a public company was
demanding but exciting and I can say that it was the right time
for the business. We have invested heavily across the Group
over the last five years, particularly in technology,
infrastructure, staff and client service. The company is now in a
strong position and being a public company will help elevate our
profile and attract new business.
In January 2016, just as we began the final stages of the listing,
global stock markets experienced one of the worst starts to a
year in their history. However, by engaging with investors and
explaining our business, we were able to list the company when
others had to delay their planned listings. One point I made on
the road shows to investors was that “amongst the fog of all this
turmoil in the financial markets, there are companies that are
My wife of 30 years had a better way of describing the CMC
journey that my family and I have been on over the last 26 years.
She penned the following poem in a card to me after the listing.
With £10,000 and a basement room,
Nobody guessed how the business would boom.
You’ve relished the highs and battled the lows,
Where your energy comes from, God only knows!
But for 26 years, you’ve led all the way,
To gain the success and respect achieved here today,
So raise your glass and shout “chin chin”!
Congratulations! Good Luck! Let the new Chapter begin!
Fiona Cruddas, February 2016
I am fully committed to my role as Chief Executive; I still retain
around 60% of the shares in the Group and by holding such a
large stake my interests are wholly aligned with our new public
shareholders. We are in this together!
As a highly cash generative business own funds have
increased by £33.3 million to £176.4 million and the Group
continues to have a strong regulatory total capital ratio of
31.2% as at 31 March 2016.
A Countdowns trade on the mobile trading app
Although it has been a demanding year in preparing and listing
the company, I am delighted to say that 2016 has been a record
year for the Group. Our focus and investment in mobile
technology continues to deliver, and now almost half of our
business is conducted on mobile devices.
Financial performance
Net operating income grew by 18% to £169.4 million. Total
expenses excluding exceptional costs increased by 17% to
£107.0 million, as a result of our continuing investment in the
business to support future growth. In particular we continue to
invest in marketing and mobile technology.
Underlying profit before tax was £62.4 million, before
exceptional listing costs of £12.1 million and exceptional income
of £3.1 million, a 20% improvement on the prior year.
Underlying earnings per share were 18.0 pence, an increase of
3.4 pence on the prior year. On a statutory basis, this was
15.1 pence, an increase of 2.7 pence on the prior year.
The value of client trades increased by 27% to £2,071 billion,
illustrating the scalability that we have in the business and
technology infrastructure, for example, 48% of the value of
client trades was executed on mobile devices.
Regional review
Revenue growth has been generated across all core regions
where the business operates. In addition, the Group has seen
improvements in key performance indicators such as revenue
per active client, which has increased by 4% to £2,828, one of
the highest in the industry today and a reflection of the quality
of our client base. Revenue per active client is presented net of
client rebates, which was a record £10.5 million, an increase of
50% on prior year.
The UK, the Group’s largest market, contributed a 30% rise in
net revenue1 demonstrating the success of our strategy to focus
on attracting and retaining high value clients. Our European
business showed growth of 7% in net revenue1 driven by our
focus on the developing our smaller offices and maintaining our
market leading2 position in Germany.
Net revenue1 in Asia Pacific (APAC) & Canada increased by
19%, as we continue to grow market share in the region. In
Australia we are now the number one provider to the active
high value client share of the market3 at 31%, up 9% from the
year before.
CMC Markets’ listing on the London Stock Exchange
1 Net revenue generated from CFD and spread bet active clients, including Countdowns, after the impact of rebates and levies
² Investment Trends April 2015 Germany CFD & FX Report
3 Investment Trends June 2015 Australia CFD Report
CMC Markets plcAnnual Report 2016CEO reportCEO report
New products and innovation
12
Our proprietary, in house developed, “Next Generation”
technology provides a clear differentiated advantage over many
of our competitors. We constantly enhance and improve the
platform, responding to client demands and new product
development. Innovation has been the foundation for our
growth over the last three years and we continue to drive the
business forward through continuing innovation in technology,
products and client service.
The benefit of developing Next Generation technology in house
rather than outsourcing is the control and flexibility over all
aspects of our core technology that it gives the Group.
We are continuing to make good progress across each of
these strategic initiatives.
Regulation
This year has seen regulators in a number of jurisdictions look
at the regulation of the contracts for difference (“CFD”) and
spread betting industry. We welcome strong regulation and
have always ensured that we operate to the highest standards
of regulatory compliance. We hope that increased regulatory
oversight will help to ensure that all operators in the industry
move towards higher regulatory standards.
Looking forward
New products have been a feature of this year and will continue
to be going forward. At the end of July 2015 we launched
‘Countdowns’, a short term binary product providing our clients
with a dynamic way to make short term trades on the markets.
We continue to look at new opportunities to drive growth. We
have a strong pipeline of new products and developments that
will be rolled out, and are looking at a number of new
geographic markets where we believe there are significant
opportunities for the Group.
In April 2016 we launched our binaries offering, again designed
to provide clients with an exciting and simple way to trade the
financial markets. But this is just the beginning with a pipeline of
new products and platform enhancements to be launched later
in the calendar year.
This year we also completed our Next Generation partners and
institutional offering, with full white label, grey label and
electronic connectivity (API). Historically, this has been a strong
area for the Group and we are excited about the incremental
growth opportunity in this sector.
In our Australian stockbroking business we also launched the
Pro Platform using HTML5 to complement the business’s
successful frequent trader strategy.
Client service
I have this fundamental belief that success is all about having a
quality product which combined with a great client service
ethos delivers a superior trading experience. This approach
ensures we maintain our loyal trading community, contributing
towards optimal returns for our shareholders and increasing
the long term value of the business.
Within the business there is a strong emphasis on exceeding the
needs of our clients through our product offer and service.
We measure how well we are performing through customer
satisfaction studies and net promoter score. In the UK we have
achieved number one position for 11 out of the top 15 drivers
of customer satisfaction. Across our established markets our
net promoter score is positive and ahead of the category
average.
Strategy
We have set out a clear strategy to grow the business in the
future around five strategic initiatives (covered in detail in the
Strategic report) and underpinning each of these is our
continuing focus on client service, innovation and technology.
Throughout the listing process I was consistently impressed
with the quality of our business across all areas. This is because
we have high quality and committed staff. As part of the listing
we have been able to recognise their contribution and retain
them within the Group through Long Term Incentive and Share
Incentive Plans, ensuring that all our interests are aligned to
drive the future success of the business. I would also like to
thank our staff for their dedication, hard work and drive for
excellence as well as our shareholders for their support and
confidence in what we are doing.
But the year would not be complete without a big thank you to
our clients who in many cases have been loyal to us over a
number of years. As part of the listing process I was adamant
that we should recognise the contribution our clients make to
our success, so we launched a client offer as part of the process
enabling retail clients to participate in a bonus share offer.
Our clients are the foundation of the business. They contribute
so much to what we do, through their valuable feedback which
helps us develop the business going forward. Their feedback is
vital to our success.
It has been a truly memorable year for the business. We are on a
fantastic journey, which will continue to grow and develop this
company, and will ultimately lead to more innovation and
exciting opportunities.
Peter Cruddas
Chief Executive Officer
7 June 2016
Customer satisfaction drivers
UK financial spread betting
Key selection driver criteria
Overall quality of the service
Execution speed
Customer service
Consistency of executing trades at prices quoted
Ease of platform navigation
Platform features
Reliability of platform
Trading tools
Value for money
Top three providers against satisfaction
13
First
Second
Third
CMC Markets
CMC Markets
CMC Markets
CMC Markets
CMC Markets
CMC Markets
CMC Markets
CMC Markets
Handling of CHF crisis on 15th Jan
CMC Markets
Spreads
Research tools
Risk management tools
Mobile solutions
Trading ideas and strategies
CMC Markets
CMC Markets
CMC Markets
CMC Markets
CMC Markets
Source: Investment Trends 2015 UK Leveraged Trading Report
Net promoter score in established markets
UK (NPS)
Australia (NPS)
Germany (NPS)
CMC
19%
CMC
13%
CMC
6%
5%
2%
4%
CMC
Sector average
Source: Investment Trends 2015
CMC Markets plcAnnual Report 2016CEO reportCEO report 19
96
20
00
20
01
Launches the world’s first online
retail FX trading platform
Starts offering CFDs in the UK
Launches online spread betting
service in the UK
Company history
14
CMC Markets was founded by Peter Cruddas in 1989, and
since then the company has grown to become a global leader in
online trading. There have been numerous milestones for the
Group over the past 26 years as the company has expanded into
new markets around the world and continues to champion
innovation and new trading technology.
expanded its global footprint with additional offices in New
Zealand, Germany, Canada, Singapore and Sweden, and had
sold a 10% equity stake to Goldman Sachs. Further global
growth followed over the next few years, with offices opened in
Norway, Spain, Italy and France.
When “Currency Management Corporation”, later abbreviated
to CMC, first began trading in London in 1989 as an FX broker,
the office contained one desk, one telephone and one highly
ambitious trader and entrepreneur. Over the following years
the company grew rapidly, and in 1996 it launched the world’s
first online retail FX trading platform, allowing its clients to take
advantage of markets previously only accessible to institutional
traders.
In 2000, CMC Markets expanded its business to become a CFD
broker. In 2001 the company launched an online financial
spread betting service, becoming the first spread betting
company to launch the daily Rolling Cash® Bet. The innovative
daily Rolling Cash® concept subsequently became an industry
benchmark.
In 2002, CMC Markets opened its first overseas office in
Sydney, launching into the Australian market as an online CFD
and foreign exchange provider. By 2007 the company had
CMC Markets launched its award-winning¹ Next Generation
platform in 2010 and has since then rolled it out across all the
regions in which the Group operates, frequently adding new
tools, features and enhancements.
The Group celebrated its silver anniversary in 2014 and
received a record number of awards in the UK in recognition of
the quality of the Next Generation trading platform and
associated service.
Innovation is a key growth driver for the business and in 2015
the Group launched Countdowns, a new fixed odds trading
product. During 2015 the Group also expanded its geographical
footprint when it opened an office in Poland.
In February 2016 the Group successfully listed on the London
Stock Exchange marking the beginning of a new and exciting
chapter in the Group’s history.
19
89
CMC Markets begins
operations in the UK
20
02
Opens first non-UK office in
Sydney, Australia
20
08
20
05
Offices opened in Beijing,
Canada and Germany
20
10
CMC Markets (Australia) starts
offering a stockbroking service
following the acquisition of local
stockbroker Andrew West & Co.
Next Generation platform is
launched; offices opened in Italy
and France; spread betting
iPhone app launched in the UK
20
13
20
14
CMC Markets wins 33 industry
awards globally
CMC Markets celebrates 25
years of being a world-leader in
online trading
Triple winner at the 2015 Shares Awards
20
06
Opens New Zealand office
20
11
CMC Markets wins Financial
Services Provider of the Year
(Shares Magazine)
20
15
Countdowns launched.
Poland and Austria offices
opened. Stockbroking Pro
Platform launched
20
07
Singapore and Sweden offices
opened; Goldman Sachs
purchases 10% stake
20
12
Spread betting app for
AndroidTM launched
20
16
CMC Markets lists on the
London Stock Exchange trading
as CMCX. Binaries launched
Annual Report 2016Company history CMC Markets plc
Strategic report
17
Strategic report
Business review
16
Our business
CMC Markets is a leading global provider of online and mobile
trading, servicing both retail and institutional clients. The
company enables clients to trade over 10,000 financial
instruments including indices, commodities, FX and equities
through its multi award-winning Next Generation trading
platform, supported by sophisticated charting, competitive
pricing and automated execution.
Clients can trade the markets via contracts for difference
(CFDs), financial spread bets (UK and Ireland only) and binaries.
Revenues are generated through transactional spreads,
financing income, commissions and trading income arising from
clients’ trading activities. Our risk management strategy is
based on highly-automated flow management, dynamically
hedging net client exposures and risk. The level of revenue is
influenced by the number of clients actively trading and the
value of those trades.
Trade over 10,000 financial instruments
339
Forex products
99
Indices
9699
Shares & ETFs
119
Commodities
63
Treasuries
Annual Report 2016Strategic report Our products
CFD
18
A CFD is a cash-settled investment based on currencies,
commodities, treasuries, indices and shares, providing
economic benefits similar to an investment in an underlying
asset without certain costs and limitations associated with
physical ownership. A CFD is a leveraged product which has the
potential to magnify profits as well as losses. In the UK, CFD
trades currently do not incur stamp tax duty charges, in
contrast to trades in traditional financial investments, such as
equity securities. The Group’s clients can trade fractions of units
per CFD, and the Group charges commission on CFD trades for
shares and charges spreads for all other asset classes. The
Group’s CFD products allow a client to take long or short
positions. As a CFD is a leveraged product, the Group requires
varying levels of margin to be posted in respect of the full value
of a client’s position. Margins vary depending on a client’s
position and the type of instrument in which the client invests.
Example
If a client believes that the price of a particular instrument is
likely to fall, they could place a sell trade or ‘go short’. Conversely,
if they think the price will rise, they could place a buy trade or ‘go
long’. If the market moved in the direction they predicted, they
would make a profit. If the market moved in the opposite
direction, they would make a loss.
When you trade CFDs, you buy or sell a number of units. For
every point the price of the instrument moves in your favour, you
gain based on the number of units you have bought or sold. For
every point the price moves against you, you will make a loss.
Spread bet
The Group’s spread betting products are offered exclusively in
the UK and Ireland as profits from spread betting are currently
free from capital gains tax and stamp duty in these jurisdictions.
Spread betting provides similar economic benefits to those
experienced when investing in an underlying asset, but without
the costs and limitations associated with physical ownership.
With a spread bet a client bets a specific stake size per point
movement of a product, rather than trading a specific number of
shares or units. The Group’s spread bet products allow a client
to take long or short positions. The Group’s spread betting
products are leveraged products. A key risk of leveraged
products is that losses can exceed deposits.
Example
If a client feels that the price of a particular instrument is likely
to fall, they could place a sell bet or ‘go short’. Conversely, if they
believed that the price will go up, they could place a buy bet, or
‘go long’. If the market moved in the direction they predicted,
they would make a profit. If not, they would make a loss.
19
When you spread bet, you buy or sell an amount per point
movement, such as £5 per point, which is known as your ‘stake’.
For every point the product’s price moves in your favour, you
gain a multiple of your stake. For every point the price moves
against you, you lose a multiple of your stake.
The CFD trade
ABC corporation
21st May
Spread
500 / 501
SELL
BUY
You think the price will rise so
you buy 2000 CFDs
Margin
5% of trade value.
2000 x 5.005 x 0.05 = £500.50
*
Open commission
0.1% to enter trade.
2000 x 5.01 x 0.001 = -£10.02
You hold the position
open for 5 days
Losing Trade
26th May
489 / 490
SELL
BUY
Assuming the market
went down, you sell 2000
CFDs at the price of 489
Close commission (0.1%)
= -£9.78
Breakdown
Trade:
489 - 501 = -12pts
x 2000 = -£240
Commission (open + close)
-9.78 + (-10.02) = -£19.80
Financing costs for 5 days at
82p per day = -£4.10**
Total Loss of -£263.90
Winning Trade
26th May
513 / 514
SELL
BUY
Assuming the market
went up, you sell 2000
CFDs at the price of 513
Close commission (0.1%)
= -£10.26
Breakdown
Trade:
513 - 501 = 12pts
x 2000 = £240
Commission (open + close)
-10.02 + (-10.26) = -£20.28
Financing costs for 5 days at
82p per day = -£4.10**
Total Profit of £215.62***
Losing Trade
26th May
CFD Spread
( 489 / 490 )
Spread Bet Spread
488.5 / 490.5
SELL
BUY
Assuming the market
went down, you sell £20
per point at 488.5
Breakdown
Trade:
488.5 - 501.5 = -13pts
x 20 = -£260
Financing Costs for 5 days: 82p
per day = -£4.10**
Total Loss of -£264.10
The Spread Bet
ABC corporation
21st May
CFD Spread
( 500 / 501 )
Spread Bet Spread
499.5 / 501.5
SELL
BUY
You think the price will rise so you
place a buy trade for £20 per point
Margin
5% of trade value.
20 x 500.50* x 0.05 = £500.50
You hold the position
open for 5 days
Winning Trade
26th May
CFD Spread
( 513 / 514 )
Spread Bet Spread
512.5 / 514.5
SELL
BUY
Assuming the market
went up, you sell £20 per
point at 512.5
Breakdown
Trade:
512.5 - 501.5 = 11pts
x 20 = £220
Financing Costs for 5 days: 82p
per day = -£4.10**
Total Profit of £215.90
* Mid-price
The mid-price is 5.005, the mid-point between the buy and sell price
** Financing cost calculation
No. of units x opening trade price x buy financing rate / 365 | (2000 x 5.01 x 3) / 365 = 82p per day | 5 days = £4.10
*** Total Profit
Profit gross of potential capital gains tax
*Mid-price
The mid-price is 500.5, the mid-point between the buy and sell price.
**Financing cost calculation
Stake x opening trade price x buy financing rate/ 365 | (20 x 501.50 x 3) / 365 = 82p per day | 5 days = £4.10
CMC Markets plcAnnual Report 2016Strategic reportStrategic report close a binary trade prior to the time of expiry as the odds of the
product being above or below a pre-determined level change as
the price in the underlying market changes. The Group has
launched four types of binaries; Ladder, One Touch, Up/Down
and Range.
Binaries and Countdowns
20
During the summer of 2015 CMC Markets launched
Countdowns, a limited risk trading product that enables clients
to place trades over a range of short-term timeframes. The
client decides the timeframe starting from time of trade as
opposed to selecting a pre-determined expiry time.
Countdowns has been rolled out across all core markets and
proven popular with both new and existing clients.
In April 2016 the Group further expanded its product range
with the launch of binaries across all core markets. With
binaries, the client’s risk and potential profit are determined at
the point of trade. Clients are offered the opportunity to place a
trade depending on whether they believe a particular market’s
price will be above or below a certain level at a specific time in
the future. If their trade is “in the money” at the end of the
specified timeframe, they will be credited with the amount
agreed at the point of trade; if they are “out of the money” they
will forfeit their stake. Clients also have the opportunity to
Losing Trade
If a Binary event does
not occur the price
settles at 0.
The UK100 settlement
price at 16:35 is 6,050.0
therefore the binary
finished below the Strike
Price and settles at 0
Loss = (0 – 30) x 10
Loss = £300
The Binary ‘Ladder’ trade
UK 100
Current Settlement Price
6,000.0
Will the settlement price be at or above
a specified strike price at the end of
the binary expiry
Strike Price
6,100.0
Current Binary Price* for this Strike
24.2^
SELL
30.0
BUY
You think the event will occur so you
place a buy trade for 10 @ 30.0
Binary Expiry**
16:35:00
Winning Trade
21
If a Binary event occurs
the price settles at 100.
The UK100 settlement
price at 16:35 is 6,110.0
therefore the binary
finished above the Strike
Price and settles at 100.
Profit = (100 – 30) x 10
Profit = £700
Winning Trade
Settlement Price finishes
above the Countdown
Price at the end of the
expiry.
Payout = (£20 x 85%) +
£20 Stake
Pay out = £37
Stockbroking
CMC Markets also offers Australian wholesale and retail clients
the ability to buy and sell ASX and SSX (formerly APX) listed
products and managed funds. Clients have access to live market
data and independent research and analysis tools.
Losing Trade
Settlement Price finishes
below the Countdown
Price at the end of the
expiry
Loss = £20 Stake
The Countdown trade
UK 100
Current Settlement Price
6,000.0
Will the Countdown Price be ‘Above’ or
‘Below’ the Settlement Price at the end
of the Countdown expiry,
Countdown Price @ 12:30:25
6,000.0
5 Minute Expiry
PAYOUT 85%*
You think the Countdown Price will
finish ‘higher than the Settlement Price
so you place an Above^ trade for £20
Countdown Expiry
12:35:25
^If you believe the Settlement Price will finish below the Countdown price at the end of the expiry then you can choose to place a Below trade. If the price finished below
we are pricing the event as less likely to occur.
at expiry then you would receive a payout of £37 ((£20 x 85%) + £20 Initial Stake). If it finished above then your loss would be limited to your stake size of £20.
^If you believe the Binary event will not occur you can sell the Binary. In the example above you would sell the Binary at 24.2 and if the event does not happen your profit
*If the Countdown price finishes equal with the Settlement Price at the end of the expiry the Countdown will end in a draw and a percentage of your stake is returned.
is equal to (24.2 – 0) x 10 = £242. If the event did occur then your loss is equal to (24.2 - 100) x 10 = £758.
The percentage of your stake returned will differ depending on the product traded and expiry.
**Binary Positions may be closed partially or fully prior to the Binary Expiry except for during the ‘Pre-Close’ period which may be different for each product and expiry.
*Binary Prices are always quoted between 0 & 100. If the price is closer to 100 then we are pricing the event as more likely to occur, while if the price is closer to 0 then
CMC Markets plcAnnual Report 2016Strategic reportStrategic report
Our geographical reach
CMC Markets is a global business with operations in 14
countries. The head office is based in London, UK and the
business has offices across many of the world’s leading
financial centres including Frankfurt, Paris, Sydney, Singapore
and Toronto.
22
Oslo
London
Paris
Toronto
Madrid
Milan
Stockholm
Warsaw
Frankfurt
Vienna
Singapore
Beijing
Sydney
Auckland
Tradez différemment
CFD : ACTIONS | INDICES
FOREX | MATIÈRES PREMIÈRES
www.cmcmarkets.fr
Documentation à caractère commercial
Opere con un
Bróker de confianza
Next Generation: una experiencia de trading sin igual
• Una plataforma profesional para el trading con CFDs con múltiples premios*
• Opere con más de 10.000 CFDs sobre Divisas, Índices, Acciones, Materias Primas y Bonos
• Horquillas competitivas, desde 0,7 pts en EUR/USD y 1,4 pts sobre US 30
• Opere en cualquier momento con nuestras apps para móviles y tablets
Expertos en CFDs y CFDs Forex
www.cmcmarkets.es
911 140 701
2014
WINNER
Best Online Trading Platform
2015
WINNER
Best Mobile/Tablet
Trading Application
*Premiada como ‘Best Online Trading Platform’ (Mejor plataforma de tradingonline) por Shares Awards en 2014; ‘Best Mobile/Tablet
Trading Application’ (Mejor Aplicación de trading para móviles y tablets), por Shares Awards 2015.
La operativa con CFDs, al ser productos complejos y apalancados, conlleva un nivel de riesgo elevado para su capital y usted puede incurrir en pérdidas que superen los
fondos depositados. Es posible que estos productos no resulten adecuados para todos los inversores; por lo tanto, asegúrese de comprender plenamente los riesgos que
implican, de hacer un seguimiento constante de la inversión y busque asesoramiento independiente en caso de ser necesario.
Annual Report 2016Strategic report Our strategic objectives
Our strategic objectives
The Group has five strategic objectives underpinning medium term revenue growth for the business.
24
Maintain a strong pipeline of new products and developments
25
Opportunity
Progress
Diversifying the product offering to attract existing clients
to trade more with the Group and broaden the appeal to a
wider potential client base.
• The release of Countdowns in July 2015 has been a
success and the release of a wider binaries offering in
April 2016 means a more complete offering for our
clients.
• Other products are currently under development, with
a strong pipeline to be delivered in the coming financial
year.
Increase the client base in established markets
Implement digital solutions to improve efficiencies across the client journey
Opportunity
Progress
Opportunity
Progress
The established markets of the UK, Australia and Germany
generate a significant part of the Group’s revenue, and
given the size of the markets, they also offer the greatest
absolute growth opportunities. This means that we
continue to focus on developing brand and product
awareness with the aim of becoming the choice provider to
new clients in these regions and provide the premium
proposition required to attract clients from competitors.
• Strong growth in the UK, net revenue increased by
30% and active clients were up 12%.
• Maintained number one market position in Germany.
• Now number one provider to high value clients in
Australia.
It is recognised that digital and mobile channels present
opportunities for the Group to attract new clients and
retain existing clients more efficiently by adopting a highly
digital approach to the client journey.
• Investment in the digital marketing team throughout
the year.
• Focus on driving demand through online and mobile
acquisition channel activity.
• Focus on conversions through new websites and
onboarding improvements.
• Focus on retention and reactivation through
sophisticated eCRM.
Expand into new markets and grow developing regions
Establish the business as a key player in the institutional sector
Opportunity
Progress
Opportunity
Progress
New regions and developing regions offer an opportunity
for revenue growth with marginal additional cost given the
scalability of the business. Markets where CMC currently
operate but have a small market share have received a
focus on expansion opportunities, and new regions where
CMC has no presence but the potential client base exists
are regularly reviewed and offices are being considered
where appropriate.
• Opening of Poland and Austria offices.
• 70% growth in the value of client trades in France.
• A number of other markets currently under review.
Strong opportunity to offer our award winning platform to
other institutions, through white label (branded) and grey
label (unbranded) propositions.
• Full Next Generation institutional offering now
available and new team established.
• Existing partners successfully migrating to the Next
Generation platform and new partners onboarded.
• Strong pipeline of opportunities.
• Capabilities also developed enabling institutions to
electronically connect to CMC platform (API
connectivity).
CMC Markets plcAnnual Report 2016Strategic reportStrategic report
Business enablers
The Group has six business enablers supporting the delivery of its objectives
26
Technology and operational excellence
27
Client service
Our ambition is to deliver an unparalleled experience to all of our clients. Offering competitive pricing, products and trading
capabilities that our clients expect.
CMC Markets continues to place the utmost importance on client service and the continuous delivery of fair outcomes to our
clients through our behaviour, image, product innovation and internal culture.
Progress
We have continued to develop the Next Generation trading platform to respond to our clients’ needs. Increased recruitment
onto our Sales Trading desk has enabled the business to manage and support our top-tier client base and to encourage
acquisition of other high value traders from our competitors.
Winning 21 awards globally last year including Highest Overall Client Satisfaction from UK Investment Trends combined
with the Best Spread Betting platform from the ADVFN International Financial Awards gives clear confirmation that we are
delivering a service that offers clients exactly what they want.
For the sixth consecutive year, our Australian stockbroking business has been awarded the CANSTAR national award for
‘Outstanding Value Online Share Trading’.
Technology and operations has always been a key to the success of CMC Markets and this has won the business recognition
as the leader in our industry for innovation and service. Our aim is to provide our clients with the ability to take ownership of
their personal financial investments. Our platform has been built to provide complete control and flexibility.
Progress
We have continued to invest in infrastructure and technology to ensure the platform has the capacity to cope with increased
demand as the business continues to grow. The rising general threat from cyber-attacks and breaches has led to an increase
in spend in this area with a number of new contracts and initiatives this year to ensure CMC has the right technology in place
to protect its business, clients and platform.
Our investment in technology and operational processes allows us to expand with ease in the future, providing scalability,
combined with exceptional dependability and speed, while driving down marginal costs as volumes grow.
Trading risk management
Part of the success of CMC Markets is our global trading risk management capability, dealing with high volumes of
sophisticated multi-asset retail flow benefiting from a significant proportion of natural aggregation. Our strong capital and
liquidity balances allow us to retain an element of net client portfolio risk, transferring the remaining risk through hedging to
our external counterparties. This delivers a highly automated transactional based risk management strategy, allowing the
business to deliver consistent and sustainable returns irrespective of underlying client performance and driving long term
client engagement.
Risk appetite is controlled via strong governance and real time controls and oversight, within tightly defined risk parameters
approved by the Board.
Competitive product offering
Progress
CMC Markets continually invests significant resources in developing the Next Generation trading platform to ensure we stay
at the forefront of the industry by constantly delivering the latest innovations. We monitor industry trends and engage
extensively with our clients through numerous feedback mechanisms to ensure we regularly add new trading tools, additional
products and new ways to trade.
Progress
During the year we added over 6,500 new instruments, bringing our total instrument offering over 10,000 global products,
all of which can be traded both online via a desktop and on the go via our range of advanced mobile apps. New usability
features, including module linking and inbuilt search functionality have also made a significant impact on how clients
navigate the trading platform features. The introduction of GSLOs (Guaranteed Stop Loss Orders) has proved to be a
popular new Risk Management tool. In addition to all these improvements we launched brand new products in the form of
Countdowns and binaries.
Our continual investment into enhancing the Next Generation technology on both web and mobile has been one of the
driving forces behind another year of industry recognition. Last year CMC Markets won the prestigious UK Financial
Services Provider of the Year from Shares Awards. This is the fourth time we have won this award in the last five years and
our third in succession. We were also honoured to win the Best Mobile/Tablet App and Best CFD Provider at the same
awards.
Enhancements to our trading tools during the year have further improved the returns of our highly automated transactional
based risk management strategy. This has helped deliver improved daily average revenue, lower revenue variability and a
lower percentage of loss days than the prior year.
The risk management framework ensures net exposures are managed within asset class level notional based limits. The risk
limits along with our regulatory requirement, broker margins and FX net open position levels are all computed and displayed
real-time in the dealer dashboards.
CMC Markets plcAnnual Report 2016Strategic reportStrategic report
28
Financial strength
29
CMC Markets plc
Strategic report
We aim to maintain our secure capital and liquidity structure, ensuring that it is appropriate for the future growth and
success of the business. This includes a long-term level of capital to withstand the demands of financial fluctuations in the
markets and access to a healthy level of surplus liquid resources in line with the size of our business and the growth
opportunities which exist.
Progress
The Group monitors its capital position on a real time basis. The Group’s capital position has increased compared with
the prior year. (see Financial review, page 36). The Group’s liquidity position has improved during the year (see Financial
review, page 36) and the available credit facility demonstrates the robust liquidity profile of the Group. The facility
provides additional capacity to support the Group’s strategy of maintaining excess liquidity to fund both growth and
client trading peaks.
Our people
CMC Markets is committed to recruiting, developing, retaining and motivating exceptional people who are talented,
innovative and determined to deliver on our promise to our clients.
The flat management structure and cross-departmental collaborative environment encourage knowledge sharing, ideas
generation and rapid delivery.
Progress
Our people are core to everything that we do and we continue to ensure that we attract and retain the best talent available;
our continuing commitment to our people is described in more depth in Corporate social responsibility (page 30).
New global TV campaign
Annual Report 2016Strategic report
Corporate social responsibility
30
31
CMC Markets has a responsibility to maximise shareholder
returns, and this is aligned with striving to provide clients with
the best service and platform, safety of deposits and best
execution. This is achieved not only through the company having
financial strength but also through investing in our employees
and wider social practices.
Our people
5761 people work for the Group globally and the Group is
committed to providing a safe, challenging, progressive and
innovative place to work. The quality of our staff is essential to
the success of the Group. We offer competitive employment
packages, including a flexible benefit scheme to enable the
Group to attract and retain the best available talent. In addition
to the senior management and critical talent equity incentives,
since listing, all UK employees are now offered the ongoing
opportunity to contribute to an HMRC eligible Share Incentive
Plan.
There is regular communication to staff at all levels through
multiple channels, including town halls, global e-mails and
publications on the intranet. These communications raise
awareness of the latest developments and factors affecting the
Company. In addition, senior management encourage dialogue
with employees through an open door policy.
Diversity
As a Group, we are committed to having a diverse workforce,
and believe that diversity brings valuable experience and skills
to the business, through boosting the productivity of our
employees. The Group provides a number of apprenticeship
and graduate positions that offer individuals the opportunity
to obtain new skills, as well as develop existing skillsets. The
Group also provides learning and development opportunities,
both on-the-job and through more formal training methods,
for all employees, including the senior management team, in
order to build critical capabilities across the Group by
specifically developing our high-potential talent and driving
business performance. We acknowledge that the diversity of
the Group can be improved and the Board monitors this on an
ongoing basis.
1 Employees of the Group including contractors as at 31 March 2016
2 Direct reports to CEO and subsidiary Directors excluding Board Directors as at 31 March 2016
Total
Employed1
Male 422
Female 154
Board
Male 6
Female 1
Senior
Management2
Male 15
Female 1
CMC Markets plcAnnual Report 2016Strategic reportStrategic report CMC Markets plc
Strategic report
33
Collaboration
We actively encourage our employees to suggest and contribute
to pioneering and innovative ideas, which are fostered through
our flat organisational structure. The Group strongly believes
that the contribution of a diverse, talented and passionate team
is vital for the continuing success of the company.
32
Equal opportunities
The Group highly values the differences and creativity that a
diverse workforce brings and is committed to recruiting,
developing and retaining a world class team irrespective of
ethnicities, nationalities, sexual orientation, gender identity,
beliefs, religions, cultures, and physical abilities. CMC Markets
seeks to establish a culture that values meritocracy, openness,
fairness and transparency.
CMC Markets affirms that it will not tolerate any form of
unlawful and unfair discrimination. In searching for talent the
commitment is always to recruit the best from the broadest
applicant pool. All candidates have the right to expect that they
will be respected and valued for the contribution that they bring
to the Group.
We are committed to giving full consideration to applications
for employment from disabled persons, as well as providing
continuing employment to existing employees who become
disabled during their employment where practicable. Where
existing employees become disabled, whether temporarily or
permanently, we adapt the working environment and where
possible offer flexible working, training and graduated back-to-
work plans in conjunction with occupational health to ensure
the retention of employees.
Human rights
CMC conducts business in an ethical manner and adheres to
policies which support recognised human rights principles. The
Group slavery and human trafficking statement can be found on
the Group website (www.cmcmarkets.com/group).
Health and safety
The health and safety of the Group’s employees and visitors is
of primary importance. The Group is committed to creating and
maintaining a safe and healthy working environment. Health
and safety audits and risk assessments are carried out regularly.
Clients
Clients are critical to the success of the business and we strive
to deliver a high quality and efficient service to all of them.
Client service is central to our strategy and is described in more
depth in the Business review on page 16.
The Group fully segregates all retail client funds whether
required by regulation or not. All funds are held separately in
designated accounts to ensure that in the event of company
default, client funds are safe and can be quickly returned
to clients.
CFDs and spread bets are leveraged products and losses can
exceed initial deposits. In order to help protect clients from
suffering excessive losses, most client positions are
automatically liquidated once margin has been reduced to
agreed levels. Within the platform there are also a number of
tools available to clients to effectively manage their risk.
We also offer our clients a range of education opportunities
through weekly and monthly webinars and seminars, as well as
our Trader Development programme which offers a wide range
of in-platform, on-demand education and tailored market
commentary.
We acknowledge that our products are not suitable for
everyone so ensure that we follow strict guidelines when
marketing our products, ensuring that our marketing material is
fair, clear and not misleading. When clients open accounts we
assess whether the product is appropriate for them by asking a
number of key questions, including trading experience, income
and savings.
Charities and the community
During the year ended 31 March 2016 CMC Markets donated
1% of profit before tax to charity totalling £540,000, with The
Peter Cruddas Foundation receiving £450,000. The Peter
Cruddas Foundation strap line is “Helping Young People
Achieve More”, and during the year a number of donations were
made to a number of London based charities, selected through
employee engagement.
In addition to the donations to The Peter Cruddas Foundation,
CMC Markets’ staff are encouraged to support charity through
a company matching scheme, with CMC Markets matching
every pound raised through employee sponsorship.
Our environmental impact
CMC Markets are committed to managing our environmental
impact and are fully aware that by considering the environment in
our decision making, particularly around technology adoption, we
can have a beneficial impact on the Group’s performance. Our key
environmental impacts are from running our global offices and
business travel. For the purpose of this report we are disclosing
our Scope 1 and 2 global emissions in accordance with the
Environmental Reporting Guidelines as issued by the
Department for Environment Food & Rural Affairs.
The running of our two UK data centres accounts for the majority
of the Group’s electricity usage, and we always look for
opportunities to improve both the efficiency of the datacentres
and the IT infrastructure housed in them. Over the past two years
we have made considerable investment in our IT infrastructure,
including moving the primary site to a new state of the art facility
outside of London during 2015, which utilises fresh air cooling
to minimise the power needed to run expensive cooling
equipment. In our secondary datacentre site we recently
installed cold aisle containment to reduce the cooling required,
which is estimated to reduce energy usage on the site by as
much as 20% per year. Further, the purchase of new server
infrastructure has enabled the business to consolidate the
amount of equipment required to support the platform,
Annual Report 2016Strategic report reducing our overall footprint by approximately half. We have further consolidated our footprint overseas by closing or reducing the
size of datacentre sites in Singapore and Sydney. All decommissioned equipment is recycled or disposed of in a secure and
environmentally sound manner.
34
We are also mindful of and have consideration for the environmental impact of each of our global offices and have a clear
preference for energy efficient rated office buildings. In this respect our UK head office is situated in a BREEAM (Building Research
Establishments Environmental Assessment Method) rated building whose management team continually strive to increase
sustainability.
We have well-established waste management initiatives in place to effectively manage and reduce waste, which have been
implemented across the organisation. We recycle all paper, cardboard waste, aluminium cans and plastics and also operate a
managed print solution to help control paper usage. We use a registered waste disposal contractor for their strict compliance with
relevant waste legislation.
Basis of preparation
Greenhouse gas emissions are calculated in alignment with records used for the production of the consolidated financial
statements for the relevant accounting period and conversion factors published by the Department for Environment, Food & Rural
Affairs guidelines “Greenhouse Gas Conversion Factors for Company Reporting” issued on 10 June 2015. All emissions required
under the Companies Act 2006 are included except where stated and include Scope 1 (direct emissions from gas consumption)
and Scope 2 (indirect emissions from purchased electricity) emissions, but exclude Scope 3 (other emissions from business travel
and waste) emissions. Global diesel usage for backup generators at one office location has been excluded from the report given
that it is not material to our carbon emissions. The figures include emissions from all global offices.
Mandatory Greenhouse Gas emissions report by scope
35
GROUP
Scope 1
Natural Gas consumption
Scope 2
Electricity consumption
Total global emissions
Net operating income
Year ended
Year ended
Unit
31 March 2016
31 March 2015 % Change
tCO₂e
tCO₂e
tCO₂e
£m
105.9
108.4
(2%)
2,518.8
2,624.7
169.4
15 .5
3,452.0
3,560.4
143.6
24 .8
(27%)
(26%)
(37%)
Intensity ratio (total global emissions / net operating income)
tCO₂e / £m
The majority of the reduction in electricity consumption is due to switch over and consequent temporary dual running of two UK
data centres during the year ended 31 March 2015. Further reductions were also achieved during the year ended 31 March 2016
through the efficiencies outlined above.
Total Emissions (tCO2e)
Year ended 31 March 2016
Total Emissions (tCO2e)
Year ended 31 March 2015
Gas 4% Electricity 96%
Gas 3% Electricity 97%
Annual Report 2016Strategic report Financial review
KPIs
36
Revenue growth and operating effectiveness
Delivery of shareholder value and returns
Net operating income
up £25.8 million (18%) to £169.4 million
FY15
FY16
Underlying profit before tax
up £10.5 million (20%) to £62.4 million
FY15
FY16
Statutory profit before tax
up £9.9 million (23%) to £53.4 million
FY15
FY16
143.6M
169.4M
£51.9M
£62.4M
£43.5M
£53.4M
▲18%
Profit after tax
up £7.8 million (22%) to £42.5 million
FY15
FY16
▲20%
Basic earnings per share
up 2.7 pence (22%) to 15.1 pence
FY15
FY16
£34.7M
£42.5M
12.4p
15.1p
▲23%
Dividend per share paid/proposed relating to the financial year
up 5.0 pence (88%) to 10.7 pence
FY15
FY16
5.7p
10.7p
Client value generation and client quality
Client value generation and client quality
Revenue per active client
up £112 (4%) to £2,828
FY15
FY16
Active clients
up 7,026 (14%) to 57,329
FY15
FY16
£2,716
£2,828
50,303
57,329
▲4%
Value of client trades
up £445 billion (27%) to £2,071 billion
FY15
FY16
£1,626Bn
£2,071Bn
▲14%
Number of trades
up 22.2 million (50%) to 66.8 million
FY15
FY16
44.6M
66.8M
37
▲22%
▲22%
▲88%
▲27%
▲50%
CMC Markets plcAnnual Report 2016Strategic reportStrategic report 39
Summary income statement
38
£m
Net operating income
Other income
Operating expenses
EBITDA
Analysed as:
Underlying EBITDA
Net exceptional items1
EBITDA
Depreciation and amortisation
Finance costs
Profit before tax
Analysed as:
Underlying profit before tax
Net exceptional items1
Profit before tax
Underlying PBT margin
PBT margin
Profit after tax
Underlying profit after tax 2
Pence
Basic EPS
Underlying Basic EPS
2016
169 .4
3 .1
(112.3)
60 .2
69.2
(9.0)
60 .2
(6.0)
(0.8)
53 .4
62.4
(9.0)
53 .4
36.8%
31.5%
42 .5
50 .7
2016
15 .1
18 .0
2015
Variance
Variance %
143 .6
-
(92.3)
51 .3
59.7
(8.4)
51 .3
(6.9)
(0.9)
43 .5
51.9
(8.4)
43 .5
36.2%
30.3%
34 .7
40 .9
25 .8
3 .1
(20.0)
8 .9
9.5
(0.6)
8 .9
0.9
0.1
9 .9
10.5
(0.6)
9 .9
0.6%
1.2%
7 .8
9 .8
18%
-
(22)%
17%
16%
(6)%
17%
13%
14%
23%
20%
(6)%
23%
-
-
22%
24%
2015
12 .4
14 .6
Variance
Variance %
2 .7
3 .4
22%
23%
1 Consists of £3.1m exceptional income and £12.1m exceptional costs
2 Based on implied tax payable should exceptional items not have been incurred
Annual Report 2016Strategic report 41
Summary
Net operating income grew £25.8 million (18%) to £169.4 million, driven by the continuing focus on the Group’s strategic
initiatives, all of which have made a contribution to delivering improvements in both active client numbers and trading activity.
40
The UK continued to grow at an encouraging pace in what is the largest mature market in the sector; our increased digital
marketing efforts are starting to deliver positive results; opening of our new Poland office and change of management in France are
starting to show improving performance; regarding new products, Countdowns were released in the UK, Australia and New
Zealand in July 2015 and the remainder of Europe in November 2015 and contributed gross revenue of £4.3 million over the
period since launch; and our institutional Partners team has begun actively selling our Partners Next Generation offering.
Although average market volatility remained lower than has been seen historically, it was higher than the previous year and this was
also a contributory factor to the rise in trading activity. The higher levels of trading activity were illustrated through a £445 billion
(27%) increase in the value of client trades to £2,071 billion, including a record month in August 2015. Against this backdrop the
continual refinement of the risk management strategy has demonstrated its value through improved consistency of the Group’s
daily revenue flow as well as a reduction in the amount of loss days.
12
10
8
6
4
2
0
11.0
10.3
8.4
2014
2015
2016
CFD and spead bet loss day %
800
700
600
500
400
300
200
100
0
476
566
673
2014
2015
2016
Average daily CFD
and spread bet trading revenue (£000s)
Active client numbers and revenue per active client (RPC) increased by 7,026 (14%) to 57,329 and £112 (4%) to £2,828
respectively. RPC growth was moderate but demonstrates the growth in active clients has not come at the detriment of the overall
quality of the client base. At £2,828 our RPC is amongst one of the highest in the industry and importantly is shown after we
returned a record £10.5 million to clients through our global rebate programme.
Total costs increased by £19.0 million (19%) to £119.1 million. Excluding exceptional costs, the year-on-year increase was £15.3
million (17%). This increase was driven by investment in personnel and increased marketing activity, partly offset by lower
amortisation costs.
Underlying profit before tax increased by £10.5 million (20%) to £62.4 million, and our underlying profit before tax margin
increased by 0.6% to 36.8%. As we have continued to invest in the business for the future we have been able to improve our margin.
Statutory profit before tax increased by £9.9 million (23%) to £53.4 million and profit before tax margin1 increased by 1.2% from
30.3% to 31.5%.
1 Statutory profit before tax as a percentage of net operating income
CMC Markets plcAnnual Report 2016Strategic reportStrategic report Net operating income overview
UK
£m
42
CFD and spread bet (including binaries) net revenue
Stockbroking (exc interest income)
Interest income
Other operating income
Net operating income
2016
162.2
5.2
1.8
0.2
169 .4
2015
136.6
5.1
2.1
(0.2)
143 .6
Retail rebates, included within net operating income, increased by £3.5 million (50%) to £10.5 million. We continue to be
committed to our clients and our monthly rebate scheme, which is based on the notional value that they trade, is central to this
commitment.
Partner and institutional rebates have also grown against the prior year, as the Next Generation institutional offering has been
released. This has resulted in existing Partner clients trading more as they have migrated to the Next Generation platform as well as
attracting new institutions.
Regional performance overview: CFD and spread bet
UK
Europe
APAC & Canada
Total
UK
Europe
APAC & Canada
Total
UK
Europe
APAC & Canada
Total
Net revenue (£m)
Value of trades (£bn)
Active Clients
RPC (£)
2016
63.1
48.5
50.6
162 .2
746
672
653
2,071
2015
17,268
21,714
18,347
57,329
3,652
2,234
2,760
2,828
Net revenue (£m)
Value of trades (£bn)
Active Clients
RPC (£)
48.6
45.4
42.6
136 .6
15,417
20,019
14,867
50,303
548
553
525
1,626
% change
Net revenue (£m)
Value of trades
Active Clients
30%
7%
19%
19%
36%
22%
24%
27%
12%
8%
23%
14%
3,152
2,269
2,864
2,716
RPC
16%
(2%)
(4%)
4%
The value of client trades in the UK was 36% ahead of the prior year at £746 billion (FY15: £548 billion), with active client numbers
up by 12% during the year to 17,268 (FY15: 15,417). The annual Investment Trends study published in October 2015 highlighted
an increase in primary market share for CMC, in a UK spread betting market that grew by 4% to 81,000 active clients. Continued
improvements to product, platform and service were underpinned by Investment Trends data with CMC ranked in the top three in
seventeen of eighteen categories relating to client satisfaction, with first place rankings in twelve categories including overall
quality of service. Client acquisition has improved by 10% from the prior year following further investment in developing the digital
marketing infrastructure. Client quality and retention again improved during the year with revenue per active client up 16% during
the year to £3,652 (FY15: £3,152), with a continued focus on attracting and retaining high value clients, those that are both new to
the market or switching to CMC from direct competitors.
43
Europe
Europe comprises the German, French, Italian, Spanish, Norwegian and Swedish offices, as well as our new Austrian and Polish
offices which opened during the year. Our Polish office will serve the wider Central and Eastern Europe region. The value of client
trades in Europe was 22% ahead of the prior year at £672 billion (FY15: £553 billion). Active client numbers were up 7% in the year
at 21,714 (FY15: 20,019). A market leading position was maintained in Germany1, CMC’s core European market with a 17%
market share of primary CFD active clients, and the launch of automatic client verification providing greater efficiency in the client
onboarding process. There was a strong performance from France, with the value of trades 70% ahead of the prior year at £33
billion (FY15: £20 billion) following changes to the management team and further investment in marketing spend. The last
remaining clients were migrated from CMC’s legacy Market Maker platform to the Next Generation platform during the year.
White and grey label Partners functionality was developed in local language for our European offices.
Countdowns launch on the Polish website
1 Investment Trends April 2015 Germany CFD & FX Report
CMC Markets plcAnnual Report 2016Strategic reportStrategic report
APAC and Canada
44
Our APAC and Canada business, which services clients from our Sydney, Auckland, Singapore and Toronto offices, continued to
grow during the year with the value of client trades 24% ahead of the prior year at £653 billion (FY15: £525 billion), new accounts
up 43% and active client numbers up 23%. Our continuing success across all key financial metrics has been further recognised
externally by Investment Trends1 with CMC achieving the number one ranking in terms of market share for CFD high value clients
in Australia, number one market share for frequent trading FX clients in Australia, and number one primary market share for CFD
high value clients in Singapore. This demonstrates success in our continued goal to acquire and support our high value client base.
These independent reports also showed that CMC had the highest prompted brand awareness in the Australian market, and
therefore CMC’s brand profile is continuing to build strength in the region.
Stockbroking
The Australian stockbroking business improved on prior year performance, with trading revenues of £5.2 million (2015: £5.1
million), driven by continued strong client acquisition. This is despite a stagnant local index combined with poor ongoing sentiment
driven by the performance of local bank and resources stocks, the slowdown seen in both China and other emerging markets and
adverse currency movements.
During the year the stockbroking business launched their Pro Platform build using HTML5 to complement its successful frequent
trader strategy, and also supported several on-market capital raisings through the ASX on-market bookbuild service. Further, the
wholesale business grew through winning several mandates which included a white label partnership with Australia’s fifth largest bank.
45
The CMC Markets sponsored NSW Waratahs in action
1 Investment Trends June 2015 Australia CFD Report, Investment Trends November 2015 Australia FX Report, Investment Trends August 2015
Singapore CFD & FX Report
Head of Product Development Ryan O’Doherty introduces the new Australian stockbroking Pro Platform
CMC Markets plcAnnual Report 2016Strategic reportStrategic report Interest income
The low interest rate environment has meant that interest income has reduced marginally from an already low base to £1.8 million
(FY15: £2.1 million). This is mainly earned through our segregated client deposits in our Australia, New Zealand and stockbroking
subsidiaries.
The Group’s underlying operating expenses increased by £16.3 million (19%) to £100.2 million with higher net staff costs (£5.4
million increase) due to investment in key areas of the business, continuing growth in digital and brand marketing spend (£4.6
million increase) and increases in other costs with higher irrecoverable sales tax and bad debts the main drivers of the rise. The
increased investment in personnel and marketing spend has directly contributed to the 14% increase in active clients.
46
Other income
All other income of £3.1 million relates to a litigation settlement. Given its one-off nature, the Group has classed the income as
exceptional.
Asset class performance
Indices continue to generate the majority of the Group’s revenue (excluding interest and other operating income) on an asset
class basis. FX has improved its revenue share due to more trading opportunities in this asset class during the financial year
leading to an improvement in value of client trades.
FY16 Revenue by asset class
FY15 Revenue by asset class
Shares 10%
Indices 48%
Commodities 11%
FX 25%
Stockbroking 3%
Countdowns 3%
Treasury 0%
Shares 12%
Indices 49%
Treasury 1%
FX 19%
Commodities 15%
Stockbroking 4%
Expenses
The London Stock Exchange listing has been a major driver in the increase in operating expenses during the year. Given the one-off
nature of these costs, they have been classed as exceptional items. Total costs and exceptional items are separated below such that
changes to the Group’s underlying cost base can be more easily understood.
Exceptional items in the current year consist of £4.8 million professional fees relating to the listing, £6.2 million share based
payment incentives awarded to staff at the listing, and other costs, including associated irrecoverable VAT, of £1.1 million.
Exceptional costs in the prior year relate to the £4.6 million settlement of an Australian litigation case and the associated legal
costs and £3.8 million relating to provisions and write-offs of client debt arising from the Swiss National Bank decision to release
the Swiss Franc peg.
£m
Net staff costs
IT costs
Sales and marketing costs
Premises costs
Legal and professional fees
Regulatory fees
Other
Total operating expenses before exceptional items
Exceptional costs
Total operating expenses
Depreciation and amortisation
Interest
Total costs
Staff costs
2016
46.1
12.7
18.3
4.8
3.6
2.7
12.0
100 .2
12.1
112 .3
6.0
0.8
119 .1
47
2015
40.7
11.4
13.7
5.6
2.9
2.1
7.5
83 .9
8.4
92 .3
6.9
0.9
100 .1
Net staff costs increased £5.4 million (13%) to £46.1 million, with investment in headcount, particularly in client acquisition,
marketing and IT development, leading to average headcount rising from 473 to 539 (14%). Performance related pay increased
broadly in line with average headcount.
£m
Wages and salaries
Performance related pay
Share-based payments (note 28)
Total employee costs
Contract staff costs
Net staff costs
Sales and marketing costs
2016
34.5
8.7
1.1
44 .3
1.8
46 .1
2015
31.1
6.9
1.0
39 .0
1.7
40 .7
Sales and marketing costs increased £4.6 million (34%) to £18.3 million during the year as we continue to invest in our brand profile
and growing our client base, with a particular focus on digital channels. Brand activity included the sponsorship of the Land Rover
BAR America’s Cup sailing team and the continuing support of the New South Wales Waratahs rugby team in Australia.
Aside from the brand spend, the main increases in expenditure were seen in our main hubs of the UK and Australia. The opening of
the new Poland office also contributed towards the increase in expenditure.
Other expenses
IT costs increased £1.3 million (11%) to £12.7 million, due to additional expenditure in the cyber security area and increased
market data costs.
Other costs increased by £4.5 million (59%) to £12.0 million, with the main contributors being a rise in irrecoverable sales tax,
which has increased along with expenditure, and an increase in bad debts caused by market gaps through periods of high volatility.
Taxation
The effective tax rate for the year was 20% (2015: 20%). The majority of the Group’s profits are taxed in the UK and the reduction
in the UK corporation tax rate from 21% to 20% had a positive effect. In addition, the Group benefited from higher utilisation of
Australian corporation tax credits, which largely offset the impact of disallowable exceptional costs associated with the listing.
CMC Markets plcAnnual Report 2016Strategic reportStrategic report Profit after tax for the year
Current liabilities
The increase in profit after tax for the year of £7.8 million (22%) to £42.5 million (2015: £34.7 million) illustrates the continuing
success of the Group’s strategy with a focus on client service, continuing innovation with enhancements of the award winning
platform.
48
Dividend
Dividends of £24.9 million were paid during the year (FY15: £12.0 million), £10.0 million relating to a final dividend for the prior
year paid in May 2015, with a £9.9 million interim dividend and a special dividend of £5.0 million paid in November 2015 in relation
to the current year performance. The Group remains committed to a dividend policy of paying 50% of underlying post-tax profit as
dividends.
Group statement of financial position
£m
Intangible assets
Property, plant and equipment
Deferred tax assets
Total non-current assets
Trade and other receivables
Derivative financial instruments
Financial investments
Amount due from brokers
Cash and cash equivalents
Total current assets
Total assets
Trade and other payables
Derivative financial instruments
Borrowings
Current tax payable
Short term provisions
Total current liabilities
Trade and other payables
Borrowings
Deferred tax liabilities
Long term provisions
Total non-current liabilities
Total liabilities
Total equity
Total equity and liabilities
Non-current assets
2016
2.6
16.4
7.7
26 .7
20.9
0.8
20.4
84.2
78.3
204 .6
231 .3
34.6
5.0
1.4
7.8
0.2
49 .0
3.5
1.1
0.0
1.4
6 .0
55 .0
176 .3
231 .3
2015
3.7
17.4
7.5
28 .6
18.8
3.2
0.0
109.8
38.6
170 .4
199 .0
38.8
0.8
1.4
3.5
4.3
48 .8
3.9
2.5
0.1
1.4
7 .9
56 .7
142 .3
199 .0
The Group is committed to investing in and developing its trading platform and these costs are expensed as incurred. The majority
of intangible assets relate to the net book value of software licences rather than net capitalised internal development costs.
Current assets
Trade and other receivables relate mainly to client receivables from Stockbroking positions yet to settle, prepayments, amounts
due from our segregated client accounts on the next working day and other client debtors. Amount due from brokers relates to
cash held at brokers either for initial margin or to reduce interest payable on the Group’s overall hedge position. Cash and cash
equivalents have increased significantly during the course of the year with cashflow generated from operations either being held
as cash or financial investments. Cash generated from the listing was used to fund the exceptional costs associated with the event.
Financial investments relate to the FCA BIPRU12 requirement to hold eligible assets against potential liquidity stress. This
investment was made during November and December 2015.
Trade and other payables consist mainly of accruals and deferred income, amounts due on Stockbroking trades yet to settle, and
amounts due to clients in relation to title transfer funds. Current tax payable has increased significantly to £7.8 million (FY15: £3.5
million) due to the increase in Group profits. The decrease in provisions relates to an Australian litigation settlement that was paid
in April 2015.
49
Non-current liabilities
Trade and other payables relate mainly to the deferred unwinding of lease incentives on our London property and the decrease in
borrowings is due to the amortisation of lease agreements associated with IT equipment purchases.
Regulatory capital
For the year under review, CMC Markets was supervised on a consolidated basis by the UK’s Financial Conduct Authority (FCA).
The Group maintained a significant capital surplus over the regulatory requirement at all times.
The Group’s Tier 1 capital increased due to the rise in retained earnings relating to audited 2016 profits, capital raising as a result
of the listing and lower intangible assets on the balance sheet. Deduction for deferred tax assets has been taken from the Tier 1
capital through a phased approach in accordance with the EU Capital Requirements Directive IV (CRD IV).
At 31 March 2016 the capital resources represented 31.2% of the capital resources requirement (31 March 2015 27.9%). The
following table summarises the Group’s capital adequacy position at the year end. The Group’s approach to capital management is
described in note 4 to the financial statements.
Regulatory Capital
Total capital resources (£m)
Total risk exposure (£m)
Total capital ratio (%)
2016
154.3
494.9
31.2%
2015
135.9
487.5
27.9%
Note: capital resources include audited reserves and any changes to deferred tax assets resulting from the audit process and proposed dividends.
Liquidity
The Group has access to the following sources of liquidity that make up total available liquidity:
• Own funds. The primary source of liquidity for the Group. It represents the funds that the business has generated historically,
excluding all cash held on behalf of segregated clients. Own funds includes investments in UK government bonds which are
held to meet the Group’s liquid asset buffer (LAB - as agreed with FCA). These UK government bonds are BIPRU 12.7 eligible
securities and are available to meet liabilities which fall due in periods of stress.
• Title Transfer Funds (TTFs). This represents funds received from professional clients and eligible counterparties (as defined in
the FCA Handbook) that are held under a Title Transfer Collateral Agreement (TTCA); a means by which a professional client
or eligible counterparty may agree that full ownership of such funds is unconditionally transferred to the Group. The Group
considers these funds as an ancillary source of liquidity and places no reliance on its stability.
• Available committed facility. (off-balance sheet liquidity). The Group has access to a facility of up to £40.0m (March 2015:
£40.0 million) in order to fund any potential fluctuations in margins required to be posted at brokers to support our risk
management strategy. The maximum amount of the facility available at any one time is dependent upon the initial margin
requirements at brokers and margin received from clients. The facility consists of a one year term facility of £20.0 million and a
three year term facility of £20.0 million, both of which will be renewed during June 2016.
CMC Markets plcAnnual Report 2016Strategic reportStrategic report The Group’s use of total available liquidity resources consist of:
• Blocked cash. Amounts held to meet the requirements of local market regulators and amounts held at overseas subsidiaries in
excess of local segregated client requirements to meet potential future client requirements.
50
• Internal liquidity buffer. An amount that represents the Group’s liquidity risk appetite. This is based on the liquidity
requirements of the Group under a number of stress tests (conducted according to the FCA’s ‘ILAS’ regime) and other
‘traditional’ liquidity measures. This internal buffer is set at £10.0 million in excess of the regulatory LAB requirement.
The Board, through its Group Risk Committee, is ultimately responsible for the implementation of an appropriate risk strategy,
which has been achieved by the establishment of an integrated Risk Management Framework. The main areas covered by the Risk
Management Framework are:
• Identification, evaluation and monitoring of the principal risks to which the Group is exposed.
• Setting the Risk Appetite of the Board in order to achieve its strategic objectives.
51
• Establishment and maintenance of governance, policies, systems and controls to ensure the Group is operating within the
• Initial margin requirement at broker. The total GBP equivalent initial margin required by prime brokers to cover the Group’s
stated Risk Appetite.
hedge derivative positions.
At 31 March 2016, the Group held cash balances of £78.3 million (2015: £38.6 million). In addition, £226.1 million (2015:
£232.3 million) was held in segregated client money accounts for clients. The movement in Group cash and cash equivalents is set
out in the Consolidated Cash Flow Statement.
Own funds have increased to £176.4 million (2015: £143.1 million). Own funds include short term financial investments, amounts
due from brokers and amounts receivable/payable on the Group’s derivative financial instruments. For more details refer to note 4
of the financial statements.
£m
Own funds
Title transfer funds
Available committed facility
Total available liquidity
Less: Blocked cash
Less: Internal liquidity buffer
Less: Initial margin requirement at broker
Surplus total available liquidity1
Client Money
2016
176.4
2.2
25.5
204 .1
(14.9)
(30.0)
(54.7)
104 .5
2015
143.1
7.8
36.8
187 .7
(14.9)
(30.0)
(52.8)
90 .0
The Board has put in place a governance structure which is appropriate for the operations of an online retail financial services
group and is aligned to the delivery of the Groups’ strategic objectives. The structure is regularly reviewed and monitored and any
changes are subject to Board approval. Furthermore, management regularly considers updates to the processes and procedures to
embed good corporate governance throughout CMC Markets.
dit
al Au
xtern
d E
n
al a
w via Intern
vie
nt re
e
d
n
e
p
e
d
In
Board
Executive Committees
Execution of Board’s risk stratgey including Risk Appetite
Risk & Control Functions
Finance, Risk Management, Legal, Compliance, Financial Crime.
Integrate risk management into daily business activities,
providing guidance tools and support
Business Functions
Identify, own, assess and manage risks.
Design, implement and monitor suitable controls,
Issue Management, KRI and Risk Appetite reporting
Total client money held by the Group on behalf of its retail clients including regulatory buffers held in client money bank accounts
was £230.7 million at 31 March 2016 (2015: £233.4 million). Client money is held by the Group in trust for its retail clients and is
not included in available liquid assets.
Client funds represent the latent capacity for our clients to trade and offer an underlying indication to the health of our client base.
As part of the Group Risk Management Framework, the business is subject to independent assurance by external and internal audit
(third line of defence). The use of independent compliance monitoring, risk reviews (second line of defence) and risk and control
self-assessments (first line of defence) provide additional support to the integrated assurance programme and ensure that the
Group is effectively identifying, managing and reporting its risks.
Client money governance
The Group has established a Risk Management Framework the main components of which are:-
The Group segregates all money held by it on behalf of retail clients in accordance with applicable client money regulations in
countries in which it operates and in particular the CASS rules of the UK Financial Conduct Authority (FCA). All segregated client
funds are held in dedicated client money bank accounts with major banks that meet strict internal criteria and are held separately
from the Group’s own money.
The Group has comprehensive client money processes and procedures in place to ensure client money is identified and protected
at the earliest possible point after receipt as well as governance structures which ensure such activities are effective in
protecting client money. The Group’s governance structure is explained further on pages 64 to 72.
Principal risks and uncertainties
The Group’s business activities naturally expose it to strategic, financial and operational risks inherent in the nature of the business
it undertakes and the financial, market and regulatory environments in which it operates. The Group recognises the importance of
understanding and managing these risks and that it cannot place a cap or limit on all of the risks to which the Group is exposed.
However, effective risk management ensures that risks are managed to an acceptable level.
¹ Surplus total available liquidity is defined as the liquidity in excess of the Group’s liquidity risk appetite and is the Group’s key liquidity measure.
• Identification and evaluation of the principal risks the Group is exposed to;
• Setting an appetite for the amount of risk the Board is willing to take to achieve its strategic objectives and having measures in
place to monitor this;
• Maintaining governance, policies and other systems and controls to enable the Group to operate within the Board’s appetite
for risk.
The Group has made enhancements to its Risk Framework and governance to provide a more structured approach to identifying
and managing the risks to which it is exposed.
The Board has undertaken a robust assessment of the Principal Risks facing the Group, including those that would threaten its
business model, future performance, solvency or liquidity and how they are managed or mitigated (code C.2.1.) These are
outlined below and details of financial risks and their management are set out in note 4 to the financial statements.
Further information on the structure and workings of Board and Management committees is included in the Corporate
Governance report on page 64.
CMC Markets plcAnnual Report 2016Strategic reportStrategic report
Category
Risk
Description
Management and Mitigation
Category
Risk
Description
Management and Mitigation
52
Business and
strategic risks
Acquisitions
and disposals
Strategic /
Business
model risk
Regulatory
change
Reputational
risk
The risk that mergers,
acquisitions or disposals
made by the Group do not
achieve the stated strategic
objectives or that they give
rise to on-going or
previously unidentified
liabilities.
The risk of an adverse
impact resulting from the
Group’s strategic decision-
making as well as failure to
exploit strengths or to take
opportunities. It is a risk
which may cause damage
or loss, financial or
otherwise to the Group as
a whole.
The risk that changes to
the regulatory framework
the Group operates in
impacts the Group
performance.
Such changes could result
in the Group’s product
offering becoming less
profitable, more difficult to
offer to clients or an
outright ban on the
product offering in one or
more of the countries
where the Group
operates.
The risk of damage to the
Group’s brand or standing
with shareholders,
regulators, existing and
potential clients, the
industry and the public at
large.
• Robust Corporate Governance structure including
strong challenge from independent Non-Executive
Directors.
• Vigorous and independent due diligence process.
• Align and manage the businesses to Group strategy as
soon as possible after acquisition.
• Strong governance framework established including
three independent Non–Executive Directors and the
Chairman sitting on the Board.
• Robust governance, challenge and oversight from
independent Non-Executive Directors.
• Managing the Group in line with the agreed strategy,
policies and risk appetite.
• Group Risk is involved in the annual budgeting process.
• Monitoring of market and regulator sentiment towards
product offering.
• Compliance department monitor and advise on impact
of actual and possible regulatory change.
• Active dialogue with regulators and industry bodies.
• Flexible business model that is responsive to changes in
regulatory requirements.
• The Group is conservative in its approach to
reputational risk and operates robust controls to ensure
significant risks to its brand and standing are
appropriately mitigated. Examples include:-
- Proactive engagement with the Group’s regulators
and active participation with trade and industry
bodies.
- Positive development of media relations with strictly
controlled media contact.
Financial risks
Credit and
counterparty
risk
The risk of a client,
custodian or counterparty
failing to fulfil contractual
obligations, including
settlement, resulting in
financial loss for the
Group. Specifically:
Client credit risk:
Financial losses may be
incurred in cases where
the adverse price move
exceeds the margin that a
client holds to maintain
their position, followed by
the client defaulting
against their contractual
obligations to pay the
deficit.
Client credit risk:
53
The Group’s management of client credit risk is significantly
aided by automatic liquidation functionality where margin
levels are continuously reviewed. If they fall below pre-
agreed levels, the positions held on the account will
automatically be closed out.
Other platform functionality mitigates risk further:
• Tiered margin requires clients to hold more collateral
against bigger or higher risk positions.
• Mobile phone access allowing clients to manage their
portfolios on the move.
• Guaranteed Stop Loss Orders allowing a client to
remove their chance of debt from their position(s).
However, after mitigations, there is a residual risk that the
Group could incur losses relating to clients moving into debit
balances if there is a market gap.
Counterparty credit risk:
Counterparty credit risk:
A Financial Institution
failing to meet or
defaulting on their
obligations in accordance
with agreed terms.
Risk management is carried out by a central Liquidity Risk
Management (LRM) team under the Counterparty
Concentration Risk Policy, approved by the Board of
Directors.
Mitigation is achieved by:
Financial
reporting risk
Insurance risk
The risk that financial,
statutory or regulatory
reports are submitted late,
incomplete or are
inaccurate.
The risk that an insurance
claim by the Group is
declined (in full or in part)
or there is insufficient
insurance coverage.
• Monitoring concentration levels to counterparties and
reporting these internally/externally on a monthly/
quarterly basis.
• Monitoring the credit ratings and Credit Default Swap
(CDS) spreads of counterparties and reporting
internally on a weekly basis.
Further information is available in note 4 to the financial
statements.
• Robust process of checking and oversight in place to
ensure accuracy.
• Knowledgeable and experienced staff undertake and
overview the relevant processes.
• Reputable broker deals with the insurance and ensures
cover is placed with financially secure insurers.
• Comprehensive levels of cover maintained.
• Rigorous claim management procedures are in place
with the broker.
• The Board’s appetite for uninsured risk is low and as a
result the Group has put in place established
comprehensive levels of insurance cover.
CMC Markets plcAnnual Report 2016Strategic reportStrategic report Category
Risk
Description
Management and Mitigation
Category
Risk
Description
Management and Mitigation
54
Financial risks
(continued)
Liquidity risk
The risk that there is
insufficient available
liquidity to meet the
liabilities of the Group as
they fall due.
Market risk
Market risk is defined as
the risk that the value of
our residual portfolio will
decrease due to changes
in market risk factors. The
three standard market risk
factors are price moves,
interest rates and foreign
exchange rates.
Risk management is carried out by a central Liquidity Risk
Management (LRM) team under policies approved by the
Board and in-line with the FCA’s ILAS regime. The Group
utilises a combination of liquidity forecasting and stress
testing to identify any potential liquidity risk both during
normal and stressed conditions. The forecasting and stress
testing fully incorporates the impact of all liquidity
regulations in force in each jurisdiction and other
impediments to the free movement of liquidity around the
Group.
Risk is mitigated by:
• The provision of timely daily, weekly and monthly
liquidity reporting and real-time broker margin
requirements to enable strong management and control
of liquidity resources.
• A £40 million committed bank facility to meet short-
term liquidity obligations to broker counterparties in
the event that it does not have sufficient access to its
own cash.
• A formal Contingency Funding Plan (CFP) is in place
that is designed to aid senior management to assess and
prioritise actions in a liquidity stress scenario.
For more information see note 4 to the financial statements.
Trading risk management monitors and manages the
exposures it inherits from clients on a real time basis and in
accordance with Board approved appetite.
CMC Markets predominantly acts as a market maker in
linear, highly liquid financial instruments in which it can
easily neutralise all market risk exposure through its prime
broker (PB) arrangements. This significantly reduces the
Group’s revenue sensitivity to individual asset classes and
instruments.
Financial risk management runs stress scenarios on the
residual portfolio, comprising a number of single and
combined, company specific and market-wide events in
order to assess potential financial and capital adequacy
impacts to ensure the Group can withstand severe moves in
the risk drivers it is exposed to.
For further information see note 4 to the financial
statements.
Operational
risks
Business
change risk
The risk that business
change projects are
ineffective, fail to deliver
stated objectives, or result
in resources being
stretched to the detriment
of business as usual
activities.
Business
continuity &
disaster
recovery risk
The risk that a physical
business continuity event
or system failure results in
a reduced ability or
inability to perform core
business activities or
processes.
Financial
crime risk
Financial Crime covers a
number of unlawful
activities including fraud
(first and third party),
theft, scams, confidence
tricks, tax evasion, bribery,
embezzlement, identity
theft, money laundering,
forgery, counterfeiting and
acts of terrorism.
Information
and data
security risk
The risk of unauthorised
access to or external
disclosure of client or
company information.
55
• Governance process in place for all business change
programmes with Executive and Board oversight and
scrutiny.
• Key users engaged in development and testing of all key
change programmes.
• Significant post-implementation support, monitoring
and review procedures in place for all change
programmes.
• Strategic benefits and delivery of change agenda
communicated to employees.
• Dedicated business continuity functional support within
Operational Risk Function.
• Use of external specialist premises to enhance
resilience in the event of a disaster recovery or business
continuity requirement.
• Periodic testing of business continuity processes and
disaster recovery.
• Prompt response to significant systems failures or
interruptions.
• Adoption of the risk based approach to financial crime,
including undertaking formal and regular risk
assessments across global operations.
• Global reporting procedures and surveillance processes
in place using local compliance and legal expertise.
• Regular and on-going training and awareness
programme in place for staff at all levels and in all
jurisdictions.
• Group Whistleblowing policy provides a clear
framework for escalation of issues.
• Dedicated Information Security & Data Protection
resource/expertise within the Group.
• Technical and procedural controls implemented to
minimise the occurrence of information security and
data protection breaches.
• Access to information only provided on a “need to
know” and “least privilege” basis consistent with the
user’s role and requires appropriate authorisation.
• Key data loss prevention initiatives and regular system
access reviews implemented across the business.
CMC Markets plcAnnual Report 2016Strategic reportStrategic report Category
Risk
Description
Management and Mitigation
Category
Risk
Description
Management and Mitigation
56
Operational
risks
(continued)
Information
technology
and infrastruc-
ture risk
The risk of loss of
technology services due to
loss of data, system or
data centre, or failure of a
third party to restore
services in a timely
manner.
• Continuous investment in increased functionality,
capacity and responsiveness of systems and
infrastructure.
• Rigorous software design methodologies, project
management and testing regimes to minimise
implementation and operational risks.
• Constant monitoring of systems performance and in the
event of any operational issues, changes to processes
are implemented to mitigate future concerns.
• Operation of two data centres in the UK.
• Systems and data centres designed for high availability
and data integrity.
• Continuous service available to clients in the event of
individual equipment failures or major disaster recovery
events.
Legal (Com-
mercial /
Litigation)
risks
Operations
(Processing)
risks
Outsourcing
and procure-
ment risks
The risk that disputes
deteriorate into litigation.
• Compliance with legal and regulatory requirements
including relevant codes of practice.
• Early engagement with legal advisors and other risk
managers.
• Appropriately managed complaints which have a legal/
litigious aspect.
• An early assessment of the impact and implementation
of changes in the law.
• Investment in system development and upgrade to
improve process automation.
• Enhanced staff training and oversight in key business
processing areas.
• Monitoring and robust analysis of errors and losses and
underlying causes.
• Outsourcing only employed where there is a tactical
gain in resource or experience.
• Due diligence performed on service supplier ahead of
outsourcing being agreed.
• Service level agreements in place and regular
monitoring of performance undertaken.
The risk that the design or
execution of business
processes is inadequate or
fails to deliver an expected
level of service and
protection to client or
company assets.
This is the risk of third
party organisations
inadequately or failing to
provide or perform the
outsourced activities or
contractual obligations to
the standards required by
the Group.
People risk
Operational
risks
(continued)
The risk of loss of key staff,
or having insufficient
skilled resources available.
• The Board has directed that the Group maintain an
active succession and resource plan for all key
individuals and groups/teams, which will mitigate some
of the risk of loss of key persons. It will adopt policies
and strategies commensurate with its objectives of:
57
Regulatory
and compli-
ance risk
The risk of regulatory
sanction or legal
proceedings as a result of
failure to comply with
regulatory, statutory or
fiduciary requirements or
as a result of a defective
transaction.
- attracting and nurturing the best staff;
- retaining key individuals;
- developing personnel capabilities;
- optimising continuous professional development;
- achieving a reputation as a good employer with an
equitable remuneration policy.
• Effective compliance function.
• Internal audit outsourced to an independent third party
professional services firm.
• Effective compliance oversight, planning and
implementation.
• Comprehensive monitoring programmes by compliance
and internal audit.
• Controls for appointment and approval of staff holding
a controlled function and annual declarations to
establish ongoing fitness and propriety.
• Governance and reporting of regulatory risks through
the Risk Management Committee, Group Audit
Committee and Group Risk Committee.
• Anti-money laundering controls for client due diligence
and sanctions checking.
Grant Foley
Chief Financial Officer & Head of Risk
7 June 2016
CMC Markets plcAnnual Report 2016Strategic reportStrategic report 58
59
CMC Markets plcAnnual Report 2016Strategic reportStrategic report Governance
Chairman’s letter
60
Dear Shareholders,
On behalf of the Board, I am pleased to present our Group
Corporate Governance report, our first since becoming a public
company. The Board recognises that an effective governance
framework is key to ensuring the Group remains successful and
all Directors are committed to ensuring that high standards of
corporate governance are achieved. However, given that there
was a short period of seven weeks between listing and the
financial year end, it was not possible to address all UK
Corporate Governance Code (“the Code”) provisions.
The importance of good corporate governance in the effective
management of the Group was a key principle of the
management team prior to listing on the London Stock
Exchange and we will continue to improve our governance
arrangements following listing. The Group already complied
with a number of the Code principles and provisions prior to
listing and during the listing preparation the opportunity was
taken to conduct a comprehensive review of the existing
governance structure.
Board composition
The Group welcomed three new independent Non-Executive
Directors to the Board during this financial period, namely,
Manjit Wolstenholme (Senior Independent Director), Malcolm
McCaig and James Richards. The knowledge, skills and
experience that these directors bring to the Group have
strengthened the Board and the directors continue to add an
independent voice as we grow as a listed company. A short
biography of all directors can be found on pages 64 to 67.
After nine years of service John Jackson retired as a Non-
Executive Director in June 2015. John continued to work with
the Group as an adviser until February 2016 to ensure a
smooth and orderly process towards listing and on behalf of the
Board and the Group I would like to thank John for his hard
work and contribution to the Company and Group.
61
London Stock Exchange listing preparation
In preparation for listing it was recognised that while the
internal governance structure was fit for purpose, additional
work was required to enhance the structure in order to satisfy
certain governance requirements of a premium listed company.
As a result, a number of work streams were instigated to ensure
that the Company’s operations as a listed company complied
with relevant regulations and guidance.
independent Non-Executive Directors, all directors received
training on the duties and responsibilities of a listed company
director and the Board under the Code, the Disclosure and
Transparency Rules and the Listing Rules. The Code can be
found on the Financial Reporting Council website. The Board
did not conduct a formal effectiveness review during the period
from listing in February 2016 to 31 March 2016. A formal
effectiveness review is required under principle B.6 of the Code
at least annually.
The Group Audit Committee, Group Risk Committee,
Remuneration Committee and Nomination Committee (“the
Board Committees”), made up of independent Non-Executive
Directors, and the Chairman where appropriate, have been
restructured and the number of meetings increased. The
restructure included:
• Separation of the role and responsibilities of the Audit and
Risk Committee into two committees; the Group Audit
Committee and Group Risk Committee; and
• Separation of the role and responsibilities of the
Nomination and Remuneration Committee into two
committees; the Remuneration Committee and the
Nomination Committee.
The responsibilities and value added by these Board
Committees are stated under the respective committee
reports on pages pages 74 to 83 and their terms of reference
are available on the investor relations page of the Company
website (http://www.cmcmarkets.com/group/investor-
relations).
A formal evaluation of the effectiveness and structure of the
Board and Board Committees will be completed during 2016
and it is intended for an independent, externally facilitated
evaluation to be completed in 2017.
Shareholder engagement
As Chairman, I am responsible for the effective communication
between shareholders and the Company and for ensuring the
Board understands the views of major shareholders. I look
forward to listening to the views of our shareholders at the
Company’s 2016 Annual General Meeting. The Chief Executive
Officer and the Chief Financial Officer & Head of Risk have met
with a number of major shareholders during the year, not only
as part of the listing process but since listing to ensure an
ongoing dialogue is maintained.
Board effectiveness
As part of the preparation for listing, the balance of skills,
experience and independence of the Board and individual
directors was reviewed. As well as the appointment of three
Simon Waugh
Chairman
7 June 2016
CMC Markets plcAnnual Report 2016Governance reportGovernance report During the period from listing of the Company’s shares to the London Stock Exchange
on 5 February 2016 until 31 March 2016, the Company complied with all the
provisions of the Code save for the exceptions noted below:
Code provision A.4.2
62
“The Code recommends that the chairman should hold meetings with the non-executive
directors without the executive directors present and that, led by the senior independent
director, the non-executive directors should meet at least annually to appraise the chairman’s
performance and on other occasions as deemed appropriate.”
Since the Company’s listing, the Chairman has held one meeting with the Non-
Executive Directors without the Executive Directors present. The Chairman and
Non-Executive Directors intend on meeting on a regular basis in 2016 without
Executive Directors present. The Senior Independent Director and other Non-
Executive Directors did not meet to appraise the Chairman’s performance since listing
and it is planned to do so before the end of the next reporting period.
Code provision B.6.1
“The Code recommends that the board should state in the annual report how performance
evaluation of the board, its committees and its individual directors has been conducted.”
The Board did not conduct a formal effectiveness review during the period from listing
in February 2016 to 31 March 2016. Three independent Non-Executive Directors
were appointed to the Board in the reporting period. Accordingly, the Board felt that it
was not conducive to carry out an evaluation so soon after listing. However, the Board
intends on carrying out an evaluation of itself, its Board Committees and individual
directors in 2016 and will report to shareholders on the findings in the next annual
report.
Code provision B.6.3
“The Code recommends that the non-executive directors, led by the senior independent
director, should be responsible for performance evaluation of the chairman, taking into
account the views of the executive directors.”
As set out above in the explanation for Code provision A.4.2 a formal performance
evaluation for the period from listing to 31 March 2016 was not completed. However,
the Senior Independent Director and the Non-Executive Directors intend on carrying
out a performance evaluation of the Chairman in 2016 and will report to shareholders
on the findings in the next annual report.
Code provision B.7.2
“The chairman should confirm to shareholders when proposing re-election of non-executive
directors that, following formal performance evaluation, the individual’s performance
continues to be effective and to demonstrate commitment to the role.”
As noted above a formal Board performance evaluation was not completed since
listing in February 2016. Notwithstanding that an evaluation was not completed, the
Chairman is of the belief that all directors standing for election at the 2016 Annual
General Meeting continue to be effective and demonstrate commitment to their roles.
CMC Markets plc
Governance
63
The new UK website
Annual Report 2016Governance report Governance
Governance
The Board
64
The role of the Board
In promoting the long-term success of the Group the Board provides entrepreneurial leadership and oversight within the
Governance structure detailed on pages 70 to 72. The Board is responsible for the development of the Group strategy and
monitoring performance against a set of clear objectives ensuring that the necessary financial and human resources are in place
to achieve this strategy.
The Board has ultimate responsibility to prepare the annual report and accounts and to ensure that appropriate internal controls
and risk management systems are in place to manage and mitigate risk. The Board delegates the in depth review and monitoring of
internal controls and risk management to the Group Audit Committee and Group Risk Committee. The terms of reference of these
Board Committees are available on the CMC Markets plc Group website (http://www.cmcmarkets.com/group/committees).
65
Simon Waugh
(Chairman)
Peter Cruddas
(Chief Executive Officer)
Appointed to the Board: 1 December 2007
Appointed to the Board: 3 June 2004
Committee membership:
Committee membership:
• Executive Committee (Chair)
• Risk Management Committee
Peter founded the Group and became its Chief Executive
Officer in 1989. Peter held this role until October 2007, and
again between July 2009 and June 2010. Between 2003 and
March 2013, he also served as the Group’s Executive Chairman.
In March 2013, he once again became the Group’s CEO, and is
responsible for running the Group on a day to day basis. Prior to
founding the Group, Peter was Chief Dealer and Global Group
Treasury Advisor at S.C.F. Equity Services where he was
responsible for all the activities of a dealing room whose
principal activities were trading in futures and options in
currencies, precious metals, commodities and spot forwards on
foreign exchange and bullion.
Current external appointments:
Royal Opera House Covent Garden Foundation
The Peter Cruddas Foundation
Finada Limited
Business for Britain Limited
Vote Leave Limited
Crudd Investments Limited
• Nomination Committee (Chair)
• Group Risk Committee
• Remuneration Committee
Simon joined the Group as a Non-Executive Director in
December 2007 and became the Non-Executive Chairman in
March 2013. He was Chairman of the Audit and Risk
Committee until listing. Prior to joining the Group, Simon was
Group Director of Sales, Marketing and Customer service at
Centrica. He retained these responsibilities for the seven years
he was with the Group, and also held the roles of Deputy CEO
of British Gas and CEO of the Centrica Financial Services
Company. On leaving Centrica, Simon became CEO of AWD
Financial Services Group, a leading Independent Financial
Advisor and consumer financial services business. Simon’s final
senior executive position was in the role of Chairman and CEO
of the National Apprenticeship Service, leading the
government’s flagship skills programme, reporting to the
Secretaries of State for both Education and Business. Simon is
also a life fellow of both the Marketing Society and the Institute
of Direct Marketing.
Current external appointments:
The Consulting Consortium Limited
Record Sure Limited
Aid-Call Limited
Age UK
Age UK Enterprises Limited
Swaines Limited
Age UK Trading CIC
BMLL Technologies Limited
Gallagher Risk & Reward Limited
CMC Markets plcAnnual Report 2016Governance reportGovernance report Manjit Wolstenholme
(Senior Independent Director)
Appointed to the Board: 9 December 2015
Committee membership:
James Richards
(Independent Non-Executive Director)
Appointed to the Board: 1 April 2015
Committee membership:
66
• Group Audit Committee (Chair)
• Group Risk Committee
• Nomination Committee
• Remuneration Committee
• Remuneration Committee (Chair)
• Group Audit Committee
• Group Risk Committee
• Nomination Committee
67
Manjit joined the Group as a Non-Executive Director in December 2015 and acts as the
Group’s Senior Independent Director. Manjit qualified as a chartered accountant with Coopers
& Lybrand. Her background includes roles as Director and Co-Head of Investment Banking at
Dresdner Kleinwort Wasserstein, and Partner at Gleacher Shacklock. She is Chair of Provident
Financial plc and Senior Independent Director and Chair of the Remuneration Committee of
Future plc as well as Chair of Audit and Non-Executive Director of Unite Group plc and Chair of
CALA Group (Holdings) Limited.
Current external appointments:
CALA Group (Holdings) Limited
The Unite Group Plc
Future plc
Provident Financial Plc
Malcolm McCaig
(Independent Non-Executive Director)
Appointed to the Board: 9 December 2015
Committee membership:
• Group Risk Committee (Chair)
• Group Audit Committee
• Nomination Committee
• Remuneration Committee
Malcolm joined the Group as a Non-Executive Director in December 2015. Malcolm is
a Chartered Management Consultant. He was a partner and practice leader, initially at Deloitte
and subsequently at Ernst & Young. He has held senior executive positions in Prudential, Cigna
and National Australia Bank. He was formerly the Chairman of Kent Reliance Building Society and
Barbon Insurance Group. Malcolm is the Senior Independent Director at Unum Ltd and Punjab
National Bank International Limited. He also holds Board positions at OneSavings Bank plc,
Tradition UK and QBE Europe.
Current external appointments:
QBE Insurance (Europe) Limited
QBE Underwriting Limited
QBE RE (Europe) Limited
TFS Derivatives Limited
Trad-X (UK) Limited
Tradition Financial Services Ltd
Tradition (UK) Limited
Punjab National Bank (International) Limited
Unum European Holdings Company Limited
OneSavings Bank Plc
Unum Limited
City of Glasgow College Foundation
Meretune Management (Falcon) Limited
James joined the Group as a Non-Executive Director in April 2015 and is the Chairman of the
Remuneration Committee and was, until listing, Chairman of the Nomination Committee. He is
also a member of the Group Audit Committee and Group Risk Committee. He was admitted to
the roll of solicitors in England and Wales in 1984 and in the Republic of Ireland in 2012. James
is a partner at Dillon Eustace, a law firm specialising in financial services in Ireland, where he
has been a partner since 2012. Prior to this he was a banking and finance partner at Travers
Smith LLP for fourteen years. Having occupied various senior positions within leading law firms,
James has extensive experience in debt capital markets, derivatives and structured finance
working with major corporates, central banks and governmental organisations.
Current external appointments:
Dillon Eustace
Grant Foley
(Chief Financial Officer & Head of Risk)
Appointed to the Board: 1 August 2013
Committee membership:
• Executive Committee
• Risk Management Committee (Chair)
Grant joined the Group in April 2013 as Group Head of Finance and was made Group Director of
Finance, Risk and Compliance in August 2013 when he was appointed to the main Board. In
January 2016, he became the Chief Financial Officer & Head of Risk. Grant is a Fellow Chartered
Accountant (FCA) and has almost 20 years of financial services experience, having held senior
finance, operational and board positions in a number of businesses. These have included Coutts &
Co, Prudential Bache, Nomura and Arbuthnot Securities.
No current external appointments
David Fineberg
(Group Director of Trading)
Appointed to the Board: 1 January 2014
Committee membership:
• Executive Committee
• Risk Management Committee
David joined the Group in November 1997 working on the trading desk and developed the
Group’s multi asset CFD and spread bet dealing desk. As a senior dealer he was
responsible for managing the UK and US equity books. Between April 2007 and
September 2012 he was the Group’s Western Head of Trading, covering all asset classes
for the Western region. In September 2012 he was appointed to the role of Group Head of
Trading and in January 2014 was appointed as the Group Director of Trading with overall
responsibility for the trading and pricing strategies and activities across the Group.
No current external appointments
CMC Markets plcAnnual Report 2016Governance reportGovernance report Leadership
Matters reserved for the Board
It is recognised that certain matters cannot, or should not, be delegated and the Board has adopted a schedule of matters reserved
for Board consideration and approval. The matters reserved for the Board fall into the following areas:
68
• strategy and management
• structure and capital
• financial reporting and controls
• internal controls and risk management
• contracts
• communications
• Board membership and other appointments
• remuneration
• delegation of authority
• corporate governance matters
The schedule of matters reserved for the Board is available on the CMC Markets plc Group website
(http://www.cmcmarkets.com/group/committees).
Composition of the Board
NAME
Simon Waugh
Peter Cruddas
David Fineberg
Grant Foley
John Jackson¹
Malcolm McCaig²
James Richards
POSITION
Chairman
Chief Executive Officer
Group Director of Trading
Chief Financial Officer & Head of Risk
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Manjit Wolstenholme²
Senior Independent Director
BOARD MEETINGS ATTENDED (ELIGIBLE)
10 (12)
12 (12)
11 (12)
12 (12)
2 (3)
6 (6)
9 (12)
5 (6)
Division of responsibilities
The roles of the Chairman and the Chief Executive Officer are separate, clearly
defined in writing and agreed by the Board.
Responsibilities of the Chairman include:
• leadership of the Board and ensuring open and effective communication between
69
the Executive and Non-Executive Directors;
• ensuring Board meetings are effective by setting appropriate and relevant agenda
items, creating an atmosphere whereby all directors are engaged and free to
enter healthy and constructive debate;
• ensuring effective communication between major shareholders and the Board;
• oversight of each directors induction and ongoing training; and
• leadership, through his role as Chairman of the Nomination Committee, of the
Board effectiveness process.
Responsibilities of the Chief Executive Officer include:
• day-to-day management of the Group’s business and implementation of the Board
approved strategy;
• acting as chairman of the Executive Committee and leading the senior
management team in devising and reviewing Group development for
consideration by the Board;
• responsibility for the operations and results of the Group; and
• promotion of the Group’s culture and standards.
Responsibilities of the Senior Independent Director (“SID”) include:
• acting as a sounding board for the Chairman and serving as an intermediary for
the other directors as necessary;
• acting as lead independent Non-Executive Director; and
• being available to shareholders in the event the Chairman, Chief Executive Officer
or other Executive Directors being unavailable.
In addition to the Chairman, the Board includes three Executive Directors and three Non-Executive Directors. All Non-Executive
Directors are considered to be independent.
Responsibilities of the Non-Executive Directors include:
• constructive challenge to management proposals and provide advice in line with
their respective skills and experience;
• help develop proposals on strategy;
• have a prime role in appointing and, where necessary, removing Executive
Directors; and
• have an integral role in succession planning.
1Retired as a director on 30 June 2015
2Appointed as a Board Director on 9 December 2015
CMC Markets plcAnnual Report 2016Governance reportGovernance report Governance Structure as at 31 March 2016
70
Independent
Assurance
External
Auditor
Governance
Group Board
Remuneration
committee
Group audit
committee
Group risk
committee
Nomination
committee
Executive
committee
Internal
Assurance
Group
Internal
Audit
Risk
management
committee
Client money
review group
Treating
customers
fairly group
Project
steering
group
Management oversight
Board / board committee
Senior management committee
Management committee
Internal Assurance
Independent Assurance
Activities of the Board
The Board has a comprehensive meeting planner for the next 12 months that ensures all matters for Board consideration are
presented and considered in a timely manner. Key areas of focus during this financial period were:
• the preparation and execution to successfully list the Company on the London Stock Exchange;
• strategic opportunities annual budget and three year plan;
• the development and launch of new products;
• risk management and risk appetite;
• the opening of CMC’s Vienna and Warsaw offices; and
• review, challenge and approval of ICAAP and ILAA
• review, challenge and approval of annual report and accounts
Effectiveness
As stated in the Chairman’s letter on page 60, a formal
effectiveness review was not conducted during the period. A
formal evaluation of the effectiveness and structure of the
Board and Board Committees will be completed during 2016
and it is intended for an independent, externally facilitated
evaluation to be completed in 2017.
and awareness of the market the firm operates in. These
meetings also presented a forum for new Directors to discuss
the business strategy and model, risk management, governance
and controls and the requirements of the regulatory framework.
These meetings and training arrangements form a key part of
the learning and development plan.
Conflicts of interest
71
The Nomination and Remuneration Committee discussed the
knowledge, skills and experience on the Board during the year.
The success and growth of the Group is testament to the
effectiveness of the Board in recent years although the Board
accept that there is always the opportunity to improve and
strengthen for the future.
The Board has a formal process system for the Directors to
disclose any conflicts of interest. The Board members are asked
to disclose any conflicts of interest at each scheduled Board
meeting and annually will be required to attest to any changes
in their conflicts register. Each Director is aware of their
responsibility to avoid conflicts of interest and to disclose any
conflict or potential conflict of interest to the Board.
In their role as Reporting Accountants a gap analysis was
produced by PricewaterhouseCoopers LLP regarding the Board
and governance structure, and action plans drafted to ensure
that the governance structure and policies were adequate. The
action plans were implemented and the Group is compliant
with the Code except where shown on page 62.
Election of Directors
Board support
Each Director has access to the Company Secretary for his
advice and services. The Company Secretary ensures that
meeting papers are delivered to Directors in a timely manner to
allow for conducive and effective Board and Board Committee
meetings.
The upcoming Annual General Meeting (“AGM”) on
7 September 2016 being held at 133 Houndsditch, London
EC3A 7BX will be the Company’s first AGM since listing on
the London Stock Exchange.
As stated in each of the Board Committees’ Terms of Reference
and the Company’s Articles of Association the Directors may
take independent professional advice at the Company’s
expense.
Following recommendations from the Nomination Committee,
the Board considers that all Directors continue to be effective,
committed to their roles and have sufficient time available to
perform their duties. In accordance with the Company’s Articles
of Association and provision B.7.1 of the Code all Directors will
be subject to annual re-election. Accordingly, all Directors will
seek election at the Company’s 2016 AGM which will be set out
in the Notice of AGM.
Independence of Non-Executive Directors and time
commitment
Each of the Non-Executive Directors are considered to be
independent. Each Director is aware of the need to allocate
sufficient time to the Company in order to fulfil their
responsibilities and are notified of all scheduled Board and
Board Committee meetings.
Directors’ induction
A formal procedure for Director Induction and ongoing training
is in place. As part of each new Director’s application for
approval from the Financial Conduct Authority (“FCA”), a skills
gap analysis and ‘learning and development plan’ was completed
and submitted to the FCA. The skills assessment was used by
the Company to tailor induction meetings and training
requirements for all new Directors. One-on-one meetings were
organised between the Director and the management team in
relevant areas of the business to allow the Director to
familiarise themselves with the management team, their
respective roles and responsibilities and gain understanding
CMC Markets plcAnnual Report 2016Governance reportGovernance report
CMC Markets plc
Governance report
73
Accountability
The Board has ultimate responsibility for reviewing and approving the Annual Report and Accounts (Code C.1.1) and it has
considered and endorsed the arrangements to enable it to confirm the Annual Report and Accounts, taken as a whole, are fair,
balanced and understandable and provides the information necessary for shareholders to assess the Company’s position and
performance, business model and strategy. With the assistance of the Group Audit Committee, the Board ensured that sufficient
time and resources were available to encompass additional disclosure requirements following listing and that the Annual Report
and Financial Statements met the additional disclosure requirements.
72
The Board believes in the governance principle of being open and transparent and prior to listing complied with a number of
principles and provisions of the Code. Following review by the Group Audit Committee, the Board considered whether, and agreed
that, the Annual Report contained the necessary information for shareholders to assess the Company’s performance, strategy and
overall business model.
Group Audit Committee
The Group Audit Committee has been delegated responsibility for the monitoring and oversight of the external audit and internal
audit of internal controls. The Committee’s responsibilities, main activities and priorities for the next reporting cycle are set out
on pages 75 to 76.
Group Risk Committee
The Group Risk Committee has been delegated responsibility for the monitoring and oversight of risk management, mitigation
and recommendation of risk appetite. The Committee’s responsibilities, main activities and priorities for the coming year are set
out on page 77.
Relations with shareholders
The Board recognises the importance of good communication with shareholders. The Chairman, Chief Executive Officer and Chief
Financial Officer & Head of Risk maintain regular contact with major shareholders to ensure that the Group strategy takes due
consideration of our shareholders’ views.
During the year there were a number of meetings with major shareholders and potential shareholders as the Company prepared to
list on the London Stock Exchange. The Chief Executive Officer and Chief Financial Officer & Head of Risk ensured that the views
of major shareholders were communicated to the Board as a whole.
Annual Report 2016Governance report
Audit and Risk Committee
Audit matters
Dear Shareholders,
74
As Chairmen of the Group Audit Committee and Group Risk Committee (the “Committees”) we are pleased to
present the Audit and Risk Committee Report. The Audit and Risk Committee (“ARC”), chaired by Simon
Waugh, was the primary Board Committee that assessed and had independent oversight of risk management
and internal controls for the majority of the financial reporting period. In January 2016 the Board agreed that
the ARC be split into separate committees namely the Group Audit Committee and the Group Risk Committee.
The Group Audit Committee (GAC) is chaired by Manjit Wolstenholme with Malcolm McCaig and James
Richards as members. The Group Risk Committee (GRC) consists of Malcolm McCaig as Chairman and James
Richards, Simon Waugh and Manjit Wolstenholme as members.
The Committees’ Terms of Reference were approved by the Board on 25 January 2016 and are available on
the Company’s website (http://www.cmcmarkets.com/group/committees). Both Committees held one formal
meeting in the period from 25 January to the 31 March 2016 with a further three GAC meetings and four
GRC meetings scheduled in 2016. The Group Risk Committee Terms of Reference was subsequently
amended and approved by the Board on 30 March 2016.
Both Committees are considered independent to management and are made up of Independent Non-
Executive Directors. The CFO & Head of Risk, external audit partner and Head of Internal Audit are invited to
attend all GAC meetings and the CFO & Head of Risk and the Global Head of Compliance are invited to all
GRC meetings.
Manjit Wolstenholme
Senior Independent Director and
Group Audit Committee chairman
7 June 2016
Malcolm McCaig
Independent Non-Executive Director and
Group Risk Committee chairman
7 June 2016
Audit and Risk Committee (1 April 2015 to 24 January 2016)
NAME
Simon Waugh
John Jackson
POSITION
Chairman
Independent Non-Executive Director
James Richards
Independent Non-Executive Director
ATTENDED (ELIGIBLE)
2 (2)
1 (1)
2 (2)
Group Audit Committee (25 January 2016 to 31 March 2016)
NAME
POSITION
ATTENDED (ELIGIBLE)
Manjit Wolstenholme
Senior Independent Director
Malcolm McCaig
James Richards
Independent Non-Executive Director
Independent Non-Executive Director
1 (1)
1 (1)
0 (1)
Group Risk Committee (25 January 2016 to 31 March 2016)
NAME
POSITION
ATTENDED (ELIGIBLE)
Malcolm McCaig
Simon Waugh
Independent Non-Executive Director
Chairman
Manjit Wolstenholme
Senior Independent Director
James Richards
Independent Non-Executive Director
1 (1)
1 (1)
1 (1)
0 (1)
Group Audit Committee responsibilities
The main role and responsibilities of the Group Audit Committee are:
• monitoring the integrity of the Financial Statements of the Group;
75
• to review and report to the Board on significant financial reporting issues and judgements;
• the assessment of the adequacy and effectiveness of the Company’s internal control systems and report to the Board on any
key findings;
• the review and approval of the internal audit charter and internal audit annual plan;
• to review the findings of all internal audit reports, make recommendations as appropriate and monitor resolution plans;
• to review and make recommendations to the Board on the effectiveness and independence of the Company’s external auditor
including appointment, re-appointment and removal of the external auditor;
• to review the findings of the external auditors; and
• to ensure that the external audit contract is put out to tender at least once every 10 years
Statement of internal controls and internal audit
The Group’s Internal Audit function is externally provided by Grant Thornton LLP. The Internal Audit function reported into the
ARC until 25 January when its reporting line moved to the Group Audit Committee. The Committee reviews regular Internal Audit
Reports; follow up verification reports on any findings within Internal Audit and reviews and approves the Internal Audit plan and
charter on an annual basis.
Significant judgements and issues
The Group Audit Committee discussed, considered and addressed the following significant judgements and issues during the year
• Revenue recognition of litigation settlement. The Committee received a paper from management to consider the
recoverability of a litigation settlement twice during the year to approve the revenue recognised in the Group accounts
• Exceptional costs. The Committee considered and approved the rationale of presenting listing costs and specific share based
payments relating to the listing as exceptional costs in order to more clearly present the Group’s financial performance
External auditor
The Group Audit Committee considers the reappointment of the external auditor annually and such consideration includes review
of the independence of the external auditor and assessment of the auditor’s performance. The current auditor has been in place for
seven years and a tender process for the external auditor position, in accordance with the Code, is due in 2019.
As part of the above mentioned review, the Group Audit Committee agreed to recommend to the Board the reappointment of
PricewaterhouseCoopers LLP as the Group’s external auditor and a resolution to this effect will be put before the shareholders at
the 2016 Annual General Meeting.
The Group Audit Committee, in line with Financial Reporting Council (“FRC”) guidance, will continue to review the qualification,
expertise, resources, effectiveness and independence of the external auditor. Also in line with FRC guidance, the Group Audit
Committee reviews the appointment of staff from the external auditor to positions within the Group and meets with the external
audit partner at least annually without executive management present.
CMC Markets plcAnnual Report 2016Governance reportGovernance report Audit fees
The Group’s audit and audit-related fees are disclosed in note 11 of the financial
statements. Audit-related fees include the reporting to the FCA on the Group’s
client money rules compliance and the opinion on compliance with the Capital
Requirements (country-by-country reporting) Regulations 2013.
76
Non-audit fees
The Group has a number of relationships with independent advisory and assurance
firms which provide alternatives to using PricewaterhouseCoopers LLP. However, the
Group has engaged with the audit company for a number of non-audit services during
the year. For each engagement their independence has been considered by both the
Group and PricewaterhouseCoopers LLP to ensure that it will not be compromised.
Non-audit related fees provided by PricewaterhouseCoopers LLP are disclosed in
note 11 of the financial statements. In 2016 there was a significant rise in these fees
due to their engagement as the Reporting Accountants for the listing of the Group on
the London Stock Exchange. The majority of the remaining non-audit fees relate to tax
compliance and tax advisory services. Material tax advisory services are tendered with
other professional services firms and the tax compliance services are subject to tender
on a five yearly basis.
Audit Committee activity during the period
During the period it was required for the Company to produce a set of audited interim
results in order to adhere to the listing requirement of ensuring a set of audited
financial statements were completed within six months of listing. The Interim Results
to 30 September 2015 were produced in accordance to the requirements of a listed
company and the Audit and Risk Committee (“ARC”) reviewed and recommended
these results to the Board for approval.
It was also a requirement for a Reporting Accountant to produce a number of reports
in relation to the Company’s proposed listing. These reports were reviewed and
challenged by the ARC prior to being recommended to the Board for approval.
The ARC also monitored and had oversight of all Internal Audit reports during the
period which included reports on a number of different areas of the business.
As described above, the ARC was split into separate Group Audit and Group Risk
Committees and between 25 January 2016 and 31 March 2016 the Group Audit
Committee held one formal meeting. Matters on the agenda for this meeting
included an update on completed internal audits, internal audit plan and charter,
external audit timetable, changes to accounting requirements and accounting
matters for Group Audit Committee consideration.
Group Audit Committee priorities for the year ending 31 March 2017
Following the successful listing on to the London Stock Exchange the Committee’s
focus will be to ensure that all relevant accounting practices and disclosures are
adhered to and that controls around these obligations are successfully embedded with
a strong culture of disclosure and transparency.
There will be greater focus on internal systems of control and particular focus will be
paid on the results of upcoming internal audits on projects and change management,
conduct and reputational risk and security.
Risk matters
Group Risk Committee responsibilities
The main role and responsibilities of the GRC are:
• oversight of the Group’s risk appetite and tolerance;
77
• the review and recommendation of the Risk Appetite Statement and Risk Management Framework;
• the provision of advice and recommendations to the Board to assist in Board decision making in relation to risk appetite and
risk management;
• the oversight of financial and liquidity risks including the responsibilities of the risk management function;
• the review of the ICAAP and ILAA frameworks;
• the oversight of, and making recommendations to the Board on, current risk exposures and future risks; and
• to review and make recommendations on embedding risk management in director and senior management’s remuneration
Risk Committee activity during the period
During the period the planning and process in relation to the ICAAP and ILAA was reviewed by the ARC, and subsequently,
following review and recommendation by the ARC, the ICAAP and ILAA was approved by the Board.
The ARC, in respect of risk management and oversight, received regular executive reporting on risk matters including capital and
liquidity risk, operational risk, legal and compliance, and financial crime.
The ARC reviewed and made recommendations on the Risk Management Framework (“RMF”) and the Risk Appetite Statement
(“RAS”) and both the RMF and RAS were recommended, and subsequently approved, by the Board.
As described above, the ARC was split into separate Group Audit and Group Risk Committees and between 25 January 2016 and
31 March 2016 the Group Risk Committee held one formal meeting. Matters on the agenda for this meeting included top and
emerging risks, update from the Chairman of the Risk Management Committee, UK referendum risks and the executive reports
relating to risk as noted above.
Group Risk Committee priorities for the year ending 31 March 2017
The oversight and mitigation of risk is a key aspect in the good governance of any company. The focus for the Group Risk
Committee will be to ensure all capital, liquidity, operational and regulatory risks are appropriately managed throughout the year.
Following the Company’s listing on the London Stock Exchange certain risks have increased in their impact to the Group such as
risks associated with disclosure obligations and the Committee will monitor the trajectory of these risks.
The Group Risk Committee receives a report at each meeting on the top risks facing the Group and advises the Board, as required,
on the implications of these risks and on potential mitigating actions.
Particular attention will be given to the potential risks associated with the United Kingdom referendum on continued membership
in the European Union. The Committee will monitor and assess the volatility risks in the lead up to the referendum and, where
possible, plan for any potential risks associated with the outcome of the referendum.
Reputational risk has increased following the listing of the Company shares onto the London Stock Exchange and Capital Market
Communications Ltd (“Camarco”), an external advisor, has been employed to monitor this risk. The Committee will review the
potential impact of increased reputational risk over the coming twelve months.
Statement of risk management
The Group Risk Committee has oversight of the Group’s risk management as detailed on page 51.
CMC Markets plcAnnual Report 2016Governance reportGovernance report
Nomination and Remuneration Committee
Nomination matters
Dear Shareholders,
78
As Chairmen of the Remuneration Committee and the Nomination Committee (the “Committees”) we are pleased to present the
Nomination and Remuneration Committee Report. The Nomination and Remuneration Committee (“NRC”), chaired by James
Richards, was the primary Board Committee that assessed and had independent oversight of Executive Director remuneration
and appointments to the Board and senior management. In January 2016 the Board agreed that the NRC be split into separate
committees namely the Nomination Committee and the Remuneration Committee.
Nomination Committee responsibilities
79
The Nomination Committee will assist the Board by regularly reviewing the composition of the Board and Board Committees and
will follow a rigorous and transparent process when identifying potential candidates for appointment to the Board. As part of this
review process, the Board and Board Committees will be subject to annual performance evaluations with an independent review
conducted at least every three years.
The Nomination Committee consists of Simon Waugh as Chair and Manjit Wolstenholme, Malcolm McCaig and James Richards
as members and will focus on the effectiveness and structure of the Board and its committees, succession planning, director
induction and on-going director training.
The Remuneration Committee consists of James Richards as Chair and Simon Waugh, Manjit Wolstenholme and Malcolm
McCaig as members and will focus on director and senior management remuneration, incentives, retention and Group
remuneration matters as required.
The Committees’ Terms of Reference were approved by the Board on 25 January 2016 and are available on the Company’s
website (http://www.cmcmarkets.com/group/committees).
Simon Waugh
Group Chairman and
Nomination Committee Chairman
7 June 2016
James Richards
Non-Executive Director and
Remuneration Committee Chairman
7 June 2016
Nomination and Remuneration Committee (1 April 2015 to 24 January 2016)
NAME
Simon Waugh
John Jackson
POSITION
Chairman
Independent Non-Executive Director
James Richards
Independent Non-Executive Director
Manjit Wolstenholme
Senior Independent Director
Malcolm McCaig
Independent Non-Executive Director
Nomination Committee (25 January 2016 to 31 March 2016)
ATTENDED (ELIGIBLE)
5 (5)
1 (1)
5 (5)
1 (1)
1 (1)
NAME
Simon Waugh
POSITION
Chairman
Manjit Wolstenholme
Senior Independent Director
Malcolm McCaig
James Richards
Independent Non-Executive Director
Independent Non-Executive Director
ATTENDED (ELIGIBLE)
1 (1)
1 (1)
1 (1)
0 (1)
The main role and responsibilities of the Nomination Committee are:
• to evaluate and review the structure, size and composition of the Board including the balance of skills, knowledge, experience
and diversity of the Board while factoring in the Company’s strategy, risk appetite and future development;
• to oversee the Board evaluation process and, in analysing the results of the evaluation, identify whether there are any skill gaps
or opportunities to strengthen the Board;
• to identify and nominate suitable candidates for appointment to the Board, including chairmanship of the Board and its
committees, and appointment of the Senior Independent Director, against a specific role description and skill set required for
the respective positions as identified under the regular reviews of the structure and composition of the Board;
• to assess the Board director’s conflict of interest on appointment and as they arise;
• to assess the independence, time commitment and engagement of each of the Non-Executive Directors;
• to monitor the external interests of Non-Executive Directors, as part of the review of Non-Executive Directors’ independence;
• to have oversight of succession plans for the appointment of Executive Directors and Non-Executive Directors; and
• to approve the report on the Committee’s activities for inclusion in the Annual Report and Accounts of the Company
Boardroom diversity
The Board is committed to a Board and leadership team comprising individuals from different backgrounds with diverse and
relevant skills, knowledge, experience and perspectives. The Nomination Committee carefully considers the benefits of diversity,
including gender diversity, whilst ensuring that our obligation to shareholders to recruit the best person for the role based on merit
is fulfilled. The Board’s Diversity Policy can be found on the CMC Markets plc Group website and gender diversity statistics are
presented on page 30.
Nomination activities during the period
The nomination matters considered by the NRC in 2015 were focused on ensuring the Board structure, size and composition was
appropriate to direct the Company during the listing process and to have the skills, knowledge, experience and diversity to lead the
company following listing on the London Stock Exchange. During the year three Non-Executive Directors were appointed, which
has increased the ‘independent voice’ at Board meetings and ensured that, excluding the Chairman, at least half of the Board
members are independent Non-Executive Directors.
All directors received training on their duties and responsibilities under the Code, the Disclosure and Transparency Rules and the
Listing Rules prior to the Company listing on the London Stock Exchange.
As described above, the NRC was split into separate Remuneration and Nomination Committees and between 25 January 2016
and 31 March 2016 the Nomination Committee held one formal meeting. Matters on the agenda for this meeting included review
of the structure and size of the Board and its committees, Board evaluation, development of directors, senior management
succession planning and Board diversity policy.
CMC Markets plcAnnual Report 2016Governance reportGovernance report Nomination Committee priorities for the year ending 31 March 2017
Due to the number of newly appointed directors within the reporting period it was considered appropriate to allow the Board to
settle down prior to conducting a formal Board evaluation. It has been agreed that a formal Board, Board Committee and
director performance and effectiveness evaluation be completed in 2016, which will be within a year of listing and allow compliance
with provision B.6.1 of the UK Corporate Governance Code.
Remuneration matters
Remuneration Committee responsibilities
80
The appointment of the Non-Executive Directors within the year followed a rigorous selection and interview process, with
assistance from an independent search firm as required.
Since the formation of the Committee on 25 January 2016 there has been one formal meeting held prior to the 31 March 2016
year end with a further three meetings scheduled in 2016.
The Remuneration Committee will assist the Board by reviewing the remuneration of the Executive Directors and senior
management and will follow the remuneration policy, which will be put before shareholders for approval at the 2016 AGM, when
considering the remuneration of executives. As part of the remuneration review process, independent advisors may be used to
ensure remuneration is appropriately benchmarked with the Group’s peer companies.
81
The main role and responsibilities of the Remuneration Committee are:
• to review and agree an appropriate Remuneration Policy which complies with all relevant regulations;
• to review and ensure that bonus payments are linked to achieving agreed corporate goals;
• to set remuneration to incentivise and retain key employees including the Executive Directors, senior management and the
Company Secretary;
• to ensure that remuneration is linked to the delivery of the long-term success of the Company;
• to review any major changes to employee benefit structures, including new share schemes, and ensure that shareholders are
consulted and the required approval process followed;
• review the appropriateness of remuneration against risk management following advice from the Group Risk Committee; and
• to ensure all relevant regulations relating to executive remuneration are adhered to
Remuneration considerations during the period
The remuneration matters considered by the former NRC in 2015 was focused on review of existing contract arrangements of the
Executive Directors and senior management team, existing employee share schemes and oversight of new share schemes linked to
a successful listing and life as a listed company.
Remuneration policy
The directors’ remuneration policy can be found on pages 92 to 100. In accordance with statutory requirements, the
remuneration policy will be put to shareholders for approval at the 2016 AGM.
Remuneration Committee priorities for the year ending 31 March 2017
The Remuneration Committee will continue to monitor the appropriateness of the Executive Directors, senior management and
Company Secretary remuneration. Shareholder feedback on the Directors’ Remuneration Policy will be considered as part of the
ongoing role of the Committee along with performance related pay and relevant remuneration policies that fall under the remit of
the Committee. It is also planned for an employee salary benchmarking exercise to be conducted in 2016 and the Remuneration
Committee will have oversight of this exercise.
CMC Markets plcAnnual Report 2016Governance reportGovernance report Annual statement by the Chairman of
the Remuneration Committee
82
Dear Shareholders,
83
I am pleased to present shareholders with our first remuneration report which, in
accordance with legislation comprises two separate parts. The Annual Report on
Remuneration setting out the implementation of remuneration policy and the
Directors’ Remuneration Policy.
The Annual Report on Remuneration sets out payments made to Directors during the
last year and how the Committee intends the Directors’ Remuneration Policy to apply
in the year ending 31 March 2017. This report is subject to an advisory vote at the
Company’s Annual General Meeting on 7 September 2016.
The Directors’ Remuneration Policy describes our forward looking policy which is
proposed to take effect immediately from the Company’s Annual General Meeting. It
is subject to a binding vote at the Annual General Meeting.
Remuneration practice is very different in the listed company environment. As part of
the transition from being a privately owned Group, the Group has to adapt to a
cultural shift. This is from an environment where, due to the Group’s highly cash
generative business, remuneration has been built around a structure of lower base
pay, annual cash bonuses and ad hoc awards of share options, to a very different
environment where a more structured framework and longer term reward horizon
are required. Our remuneration policy needs to continue to satisfy the aspiration of
key personnel who are critical in helping drive and grow the business, and align them
with the longer term interests of all our shareholders. We need to acclimatise to the
changes we put in place in anticipation of listing and engage with our shareholders to
seek approval of our move to a more typical remuneration structure for the listed
environment. A journey which has begun.
The context of remuneration in the year ended 31 March 2016
Prior to the Company’s listing in February 2016 the Committee reviewed
remuneration policy to ensure the remuneration arrangements for the Group’s
Executive and Non-Executive Directors would support the Group’s business strategy
and take appropriate account of the Company’s new status as a FTSE 250 company.
Following this review, the major decisions on Executive Directors’ remuneration policy
included the following:
• Increases in base salary to take account of other changes in remuneration
structure, and to reflect the anticipated market position of the Group following
listing.
• Review of annual incentive arrangements for Executive Directors and senior
management.
• Granting of pre-IPO awards to reinforce stability of the senior management team
in the first two years post-IPO. These were granted with reference to the share
price at listing of £2.40. The awards vest 50% on each of the first and second
anniversaries of listing and are subject to continued employment and malus and
clawback provisions.
• Introduction of a new Long Term Incentive Plan based primarily on three-year
EPS growth and three-year total shareholder return relative to FTSE250
companies (excluding Investment Trusts), and subject to malus and clawback
provisions.
• Introduction at listing of an award of “free shares” to all eligible employees under
an HMRC approved Share Incentive Plan (SIP) in which the Executive Directors
other than the CEO participated.
Details of the remuneration policy and the amount paid during the year ended 31
March 2016 are respectively given in the Directors’ Remuneration Policy and the
Annual Report on Remuneration.
The Group’s auditors, PriceWaterhouseCoopers LLP, have audited the information in
the single total figure of remuneration section.
Group Performance in the year ended 31 March 2016
The financial and operating performance for the year ended 31 March 2016 is set
out in the Strategic report. Overall the Group has had a strong performance in a
competitive environment. As the Chief Executive has stated in his report, 2016 has
been a “landmark year” for the Company. With the growth in net operating income
and underlying profit before tax there continues to be investment in technology,
new products and offices. The financial and operating performance for the year
ended 31 March 2016 is set out on pages 36 to 57 in the Strategic report.
The Committee has considered this performance along with compliance with the
Company’s risk appetite, individual performance and behaviour in determining the level
of annual incentive to be awarded. In light of the above, and in accordance with the
policy in place prior to this AGM, the Committee made annual incentive awards of 100%
of salary to the Executive Directors. Further details can be found on page 85.
Conclusion
This has been a year of significant transition for the Company from private ownership
to a full listing on the London Stock Exchange.
I hope you find the reports helpful in understanding the Group’s past and future
remuneration practices as we move into a new environment and that you will support
the resolutions relating to remuneration at the forthcoming Annual General Meeting.
James Richards
Remuneration Committee Chairman
7 June 2016
CMC Markets plcAnnual Report 2016Governance reportGovernance report Compliance Statement
Annual report on remuneration
This Remuneration Report has been prepared on behalf of the Board by the Remuneration Committee (the ‘Committee’) in
accordance with the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013.
The Committee adopts the principles of good governance as set out in the UK Corporate Governance Code and complies with the
UKLA Listing Code.
84
The following parts of the Annual Report on Remuneration are audited: the single total figure of remuneration for directors,
including annual incentive outcomes for the financial year ending 31 March 2016, scheme interests awarded during the year,
and total pension entitlements; payments to past directors and payments for loss of office; and, directors’ shareholdings and
share interests.
The following section sets out the remuneration arrangements and outcomes for the year ended 31 March 2016, and how the
Committee intends the Remuneration Policy to apply during the year ending 31 March 2017.
Single figure of Executive Director remuneration
85
The table below sets out a single figure for the total remuneration received by each Executive Director who served during the years
ended 31 March 2016 and 31 March 2015.
£’000
Name
Peter Cruddas
Grant Foley
David Fineberg
Year ended
31 March
Salary
Benefits1
Annual
Incentive2
Long term
Incentives3
Share
Incentive plan4
Pension5
2016
2015
2016
2015
2016
2015
337 .5
250.0
228 .3
154.5
206 .7
154.5
2 .4
2.2
1 .1
1.0
1 .1
1.0
400 .0
250.0
270 .0
145.5
240 .0
154.5
-
-
883 .6
268.8
1,249 .7
268.8
-
-
3 .6
-
3 .6
-
-
-
22 .8
15.5
20 .7
15.5
Total
739 .9
502.2
1,409 .4
585.3
1,721 .8
594.3
1 Taxable value of benefits received in the year by Executive Directors comprise private health insurance and, in addition for the CEO, dental insurance.
2 Annual Incentive: The total earned in respect of performance during the relevant financial year. As per past policy annual incentives were calculated by reference to the
annual pay at the end of the financial year; going forward, the company will use the annual salary paid to calculate incentive opportunities.
3 Long Term Incentive: For the year ended 31 March 2016, based on the market value of the Pre-IPO Retention Awards calculated with reference to the share price
at Listing of £2.40. Awards were granted to Executive Directors, senior management and other key employees to retain and motivate key talent through listing and
beyond. Awards vest 50% on the first and second anniversaries of listing, subject to continued employment and malus and clawback provisions apply. For the year
ended 31 March 2015, based on nil-cost options awarded under the Company’s 2009 Management Equity Plan, calculated with reference to the share price at
grant of £1.74. These awards vested on listing.
4 Share Incentive Plan: Employees including the Executive Directors are entitled to participate in the SIP throughout the year; it allows employees and Directors to
receive one matching share for every partnership share purchased under the SIP up to the limits defined by HMRC. Free shares were granted to employees (including
Grant Foley and David Fineberg) with a market value of £3,600; these shares were granted on 11 February 2016 and will be forfeited if within 3 years from the date of
grant, the individual leaves employment in certain circumstances. Peter Cruddas does not currently participate in the plan.
5 During the year ended 31 March 2016, Grant Foley and David Fineberg received a Company pension contribution of 10% of salary. Peter Cruddas opted out of the
plan and no compensation was provided. None of the Executive Directors have a prospective right to a final salary pension by reference to years of service.
External appointments
It is the Board’s policy to allow Executive Directors to take up external Non-Executive positions, subject to the prior approval of the
Board. Any fee earned in relation to outside appointments is retained by the Executive Director. No Executive Director held any
external appointments during the year ended 31 March 2016 with the exception of Peter Cruddas who held one Non–
Executive position and a number of other directorships as detailed in the governance section of the Annual Report on page 65,
he receives no fee in respect of these appointments.
CMC Markets plcAnnual Report 2016Governance reportGovernance report Single figure of Non-Executive director remuneration
Payments to past directors and for loss of office
The table below sets out the single figure of the total remuneration received by each Non-Executive Director who served during
the year ended 31 March 2016 and 31 March 2015.
Remuneration comprises an annual fee for acting as a Chairman or Non-Executive Director of the Company. Additional fees are
paid to Non-Executive Directors in respect of service as Chairman of the Audit, Risk or Remuneration Committees.
86
£’000
Name
Simon Waugh
James Richards
Malcolm McCaig
Manjit Wolstenholme
John Jackson
Year ended
31 March
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
Base fee
Committee fee
SID fee
Benefits
130 .4
125.0
52 .5
-
19 .6
-
19 .6
-
22 .5
90.0
-
-
2 .5
-
2 .5
-
2 .5
-
2 .5
10.0
-
-
-
-
-
-
0 .8
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
130 .4
125.0
55 .0
-
22 .1
-
22 .9
-
25 .0
100.0
Award under the Annual incentive plan for the year ended 31 March 2016
During the year ended 31 March 2016, Executive Directors participated in the annual Incentive plan with a maximum opportunity of
up to 100% of salary.
There were no payments to past directors or for loss of office during the year.
Share ownership and share interests
The Committee has adopted guidelines for Executive Directors and other senior executives to encourage substantial long-term
share ownership. Executive Directors are expected to build and hold shares of at least 200% of salary and to retain at least 50% of
shares vesting (net of tax) until the guideline is achieved.
87
The table below shows the interests of the Directors and connected persons in shares and the extent to which CMC Markets’
shareholding guidelines are achieved.
Name
Executive Directors
Peter Cruddas
Grant Foley1
David Fineberg1
Non-Executive Directors
Simon Waugh
James Richards
Malcolm McCaig
Manjit Wolstenholme
John Jackson2
Total share interests
Total share interests
at 31 March 2015
at 31 March 2016
Requirement met
249,610,638
179,929,906
-
21,688
-
-
-
-
-
21,688
Yes
No
No
25,000
Not applicable
-
Not applicable
12,500
12,500
Not applicable
Not applicable
70,883
Not applicable
Not applicable
Annual incentive awards were predominantly based on pre-incentive underlying Group profit before tax. Final determination of
actual awards was also subject to the Committee’s assessment of satisfactory individual performance and behaviour and that
outcomes were achieved within the risk appetite of the Company.
1 In addition, Grant Foley and David Fineberg have interests in unvested awards, subject to deferral, granted under the Pre-IPO Retention Plan, of respectively
368,150 and 520,700 conditional rights to shares on vesting and of respectively 2,954 and 3,074 shares under the Share Incentive Plan subject to forfeiture
for three years.
2 John Jackson retired on 30 June 2015.
The movement in directors’ share interests between the end of the year and 3 June 2016 were an increase of 787 for David
Fineberg and 727 for Grant Foley associated with partnership share purchases through the SIP.
For the year ended 31 March 2016, target performance for pre-incentive underlying Group profit before tax was £68.0 million and
the stretch requirement was £71.0 million. Actual performance was £72.0 million which warranted the maximum/stretch level of
incentive award. Underlying profit before tax excludes items such as exceptional listing costs of £12.1 million and exceptional income
of £3.1million relating to litigation income which are both included in statutory profit before tax.
This approach is used by the Committee as a guideline rather than being formulaic and applies to all employees, and not just board
directors. The disclosure above therefore provides full retrospective disclosure of Group financial targets that determine the annual
incentive outcomes.
While the specific individual objectives of the Executive Directors are considered commercially sensitive, the following provides
details of some of the executive director achievements which the committee took into account:
• The successful execution of the listing
• Continued strong performance of the Company including 14% growth in active clients and 4% increase in revenue per active
client
• New product and platform developments
• Continued recruitment and retention of high calibre employees
The Committee also considered wider factors including the quality of earnings generated, and feedback from the Chief Financial
Officer & Head of Risk, and determined that performance was achieved within the risk appetite of the firm.
Following consideration of the above, the Committee awarded incentives of 100% of salary i.e. the maximum incentive to each
Executive Director, equivalent to £400,000 for Peter Cruddas, £270,000 for Grant Foley, and £240,000 for David Fineberg.
Awards are paid in cash and are subject to clawback provisions.
* Non-Executive Directors are not entitled to benefits. Reimbursed expenses which are not strictly business related are subject to tax via PAYE.
CMC Markets plcAnnual Report 2016Governance reportGovernance report Total shareholder return (TSR) performance and CEO single figure
Relative importance of spend on pay
The below chart compares the total shareholder return (TSR) of the Company against the FTSE250 Index based on £100 invested
at listing (5 February 2016). The FTSE250 index has been selected as a relevant comparator as it includes companies of a similar
size and complexity to CMC Markets plc and the Company is a constituent of the Index. The full year single figure of remuneration
for the Chief Executive has been included in the table that follows the graph for simplicity.
88
120
110
100
90
80
CMC Markets
FTSE250
5-Feb-16
31-Mar-16
Source: DataStream
CEO - single figure of remuneration (£000)
CEO Single figure of remuneration (£’000)
Annual incentive payout (as % of maximum)
2016
739.9
100%
Long term incentives (as % of maximum)
Not applicable
CMC Markets listed on the London Stock Exchange on 5 February 2016; however the full year single figure has been included here.
The chart below illustrates the Group’s actual expenditure on shareholder distributions (including dividends and share buybacks)
and total employee pay expenditure for the financial years ended 31 March 2015 and 31 March 2016.
£m
50
45
40
35
30
25
20
15
10
5
0
+13%
46.1
40.7
+91%
30.4
15.9
Employee remuneration
Distributions to shareholders
2015
2016
89
Dilution
The Company’s share schemes are funded through a combination of shares purchased in the market and new-issue shares, as
appropriate. The Company monitors the number of shares issued under these schemes, compared to the relevant dilution limits set
by the Investment Association in respect of all share plans (10% in any rolling ten-year period) and executive share plans (5% in any
rolling ten-year period). No shares have been issued since Listing except for awards under the HMRC approved Share Incentive
Plan.
Implementation of remuneration policy for year ending 31 March 2017
Salary
Following a review by the Committee, Executive Director salaries for the year ending 31 March 2017 were increased by 2.5%,
which is in line with the average employee increase across the Group. For the year ending 31 March 2017, salaries for Executive
Directors are therefore £410,000 for the CEO, £276,750 for the CFO & Head of Risk, and £246,000 for the Group Director
of Trading.
Pension
Executive Directors will continue to receive a pension contribution of 10% of salary, or cash in lieu of pension (net of employer
costs) in the year ending 31 March 2017, with the exception of the CEO who does not currently participate in the scheme.
Percentage change in CEO remuneration
Annual incentive
The table below shows the percentage change in salary, taxable benefits and annual incentive for the CEO, and the average for all
employees within the Company.
CEO annual cash
Salary
Taxable benefits
Annual incentive
Year ended 31 March
Year ended 31 March
2016
£000
337.5
2.4
400.0
2015
£000
250.0
2.2
250.0
Average increase across
Increase
all employees
35%
9%
60%
3.3%
9.5%
15%
The CEO’s salary was set at £400,000 from 1 February 2016 which the Committee believes is a competitive rate, taking into
account various factors including the individual’s role and experience, and salary levels for similar roles at sector comparators and
companies of a similar size and complexity. The CEO’s salary was previously £325,000.
The annual incentive for the year ending 31 March 2017 will operate in line with the Remuneration Policy. The Company operates
an incentive pool approach. The incentive pool is based on Group profit and subject to the Committee’s assessment that the profit
outcome has been achieved within the agreed risk appetite of the Company. Allocations are based on an assessment of individual
performance, with due regard to the achievement of non-financial/strategic objectives, the individual’s contribution and behaviour,
and compliance with the Company’s risk appetite. Annual incentives for the year ending 31 March 2017 will be up to 120% of
salary for the CEO and up to 100% of salary for other Executive Directors1.
Shareholders will recognise that the Company operates in a very competitive market and the Board considers prospective
incentive performance objectives and targets to be commercially sensitive. In our Annual Remuneration Report, we will provide a
full retrospective rationale of why bonuses were paid to ensure that shareholders can clearly identify the close link between pay
and performance.
1 This will be based on the annual salary paid to the Executive Director during the year ending 31 March 2017.
CMC Markets plcAnnual Report 2016Governance reportGovernance report During the year, the Committee sought internal support from the Chief Executive Officer, Peter Cruddas, and the Chief Financial
Officer & Head of Risk, Grant Foley, who attended Committee meetings by invitation from the Chairman. Advice was sought on
specific questions raised by the Committee and on matters relating to the performance and remuneration of senior managers. No
Director was present for any discussions that related directly to their own remuneration. The Company Secretary, Jonathan
Bradshaw or his deputy attends each meeting as Secretary to the Committee.
Advisers
In undertaking its responsibilities, the Committee seeks independent external advice as necessary. Following a competitive tender
process during 2015, the Committee appointed Mercer LLC (‘Mercer’) as the principal external adviser to the Committee. Mercer
is a voluntary signatory to the Code of Conduct for Remuneration Consultants, which assures clients of independence and
objectivity. Details of the Code can be found at www.remunerationconsultantsgroup.com. During the year, Mercer provided
independent advice on a wide range of remuneration matters including current market practice, benchmarking of executive pay and
incentive design. They provide no other services to the Company. The fees paid to Mercer in respect of work carried out for the
Committee for the year under review totalled £58,000 on a time and materials basis. The Committee is comfortable that the
advice it has received has been objective and independent.
91
Summary of shareholder voting
The Company listed on the London Stock Exchange in February 2016. The Company is presenting this Annual Report on
Remuneration and the Policy Report to our shareholders for voting at our September 2016 AGM. The Committee will summarise
results in a Regulatory News Announcement shortly after the AGM and in next year’s Remuneration Report.
Long term incentive plan (LTIP)
It is anticipated that initial LTIP awards will be performance shares of up to 125% of salary and will be granted shortly after our
September 2016 AGM, subject to shareholder approval of the new Remuneration Policy.
Performance will be measured over three years based 60% on point to point EPS growth, 30% on TSR relative to FTSE250
companies (excluding investment trusts) and 10% on customer satisfaction, based on Net Promoter Score as assessed by
Investment Trends. Net Promoter Score is a measure of how likely clients are to recommend the Company to others.
90
Awards are subject to malus and clawback provisions for a seven year period from award date.
The Committee intends performance targets for the initial LTIP awards will be as follows:
Threshold performance
(25% vesting)
Stretch performance
(full vesting)
EPS growth (60%
weighting)
TSR relative to FTSE2501
(30% weighting)
6% p.a.
18% p.a.
Median
Upper quartile
Net Promoter Score
(10% weighting)
Above industry
average
Upper quartile
of industry
There will be straight-line vesting between these performance points.
The EPS growth targets for the first cycle take account of internal projections and external expectations. The Committee intends
to review LTIP performance targets in advance of future cycles to ensure these are stretching yet achievable over the relevant
3-year period.
The Company currently anticipates that the CEO will not participate in the LTIP during the year ending 31 March 2017.
Non-Executive Director remuneration
Remuneration for the year ending 31 March 2017 is unchanged and is as follows:
Role
Chairman fee
Non-Executive Director fee
Committee Chairman additional fee
Senior Independent Director additional fee
£000
160.0
60.0
10.0
5.0
Consideration by the Remuneration Committee2 on Non-Executive Directors’ remuneration
The Committee met five times during the year under review. Attendance by individual Committee members at meetings is
detailed below.
Name
James Richards3
Simon Waugh
Manjit Wolstenholme4
Malcolm McCaig4
John Jackson5
Member throughout 2015/16
Attended (Eligible)
Yes
Yes
No
No
No
5 (5)
5 (5)
1 (1)
1 (1)
1 (1)
1 TSR measure is FTSE250 excluding investment trusts.
2 Up until 25 January 2016, there was a single Remuneration and Nomination Committee. On 25 January 2016, the Remuneration and Nomination Committee was
split into two separate Committees; no formal Remuneration Committee meetings were held between 25 January 2016 and 31 March 2016.
3 James Richards is Remuneration Committee Chairman and has been a Committee member since 1 April 2015.
4 Manjit Wolstenholme and Malcolm McCaig have been Committee members since 9 December 2015.
5 John Jackson was the Nomination and Remuneration Committee Chairman until he retired on 30 June 2015.
CMC Markets plcAnnual Report 2016Governance reportGovernance report Policy report
Group’s remuneration policy for Executive Directors
The below Policy Table summarises the key components of remuneration for the Executive Directors:
This section of the report sets out the proposed Remuneration Policy for Executive and Non-Executive Directors which is intended
to apply from our September 2016 AGM, subject to shareholder approval at that meeting.
92
Our Remuneration Policy is designed to ensure remuneration supports achievement of the Group’s goals, and provides effective
incentives for exceptional Company and individual performance. The Committee regularly reviews the remuneration structure
in place to ensure it remains aligned with our business strategy, reinforces our success, and aligns reward with the creation of
shareholder value ensuring that there is an appropriate balance between fixed and performance-related pay. A high proportion
of executive remuneration is linked to performance targets including the Group’s performance and the executives’ personal
contribution. A considerable part of the reward package is linked to share price performance and is to be delivered in shares that
have to be partially retained until minimum shareholding requirements have been met in accordance with shareholding guidelines.
The Remuneration Policy also complies with relevant financial services regulation, with all incentives subject to remaining within
the risk appetite of the Company.
Purpose and link to strategy
Operation
Maximum opportunity
Performance measures
93
Base salary
To reflect the market value of
the role and individual’s
experience, responsibility and
contribution
The policy is for base salary to be
competitive . In making this
assessment the Committee looks
particularly at sector peers and
other FTSE 250 (excluding
Investment Trusts) companies.
Salaries are reviewed on an annual
basis, with any increase normally
taking effect from 1 April.
The Committee reviews base
salaries with reference to:
the individual’s role,
−
responsibilities, and experience;
− business performance and the
external economic environment;
salary levels for similar roles at
−
relevant comparators; and,
salary increases across the
−
Group.
Payable in cash.
Pension
To provide competitive
retirement benefits
Executive Directors participate in a
defined contribution pension
scheme or may receive a cash
allowance in lieu.
Base salary will not
exceed the highest in
the comparator group.
Business performance is
considered in any
adjustment to base salary
Base salary increases are
applied in line with the
outcome of the review.
It is anticipated that
salary increases will
generally be in line with
those awarded to the
wider employee
population.
Increases may be above
this level if there is an
increase in scale, scope,
market comparability or
responsibily of the role.
Where increases are
awarded in excess of the
wider employee
population, the
Committee will provide
an explanation in the
relevant year’s
Remuneration Report.
Up to 15% of salary.
Pension contributions
for the year ending 31
March 2017 have been
set at 10% of base pay.
Not applicable
Share Incentive Plan (‘SIP’)
To encourage broad employee
share ownership
In line with HMRC rules. Executive
Directors are entitled to
participate in the SIP on the same
terms as other employees.
In line with HMRC
permitted limits.
Not applicable
Benefits
To provide market
competitive benefits.
Not applicable
Benefits may vary by role
and individual
circumstances and are
reviewed periodically to
ensure they remain
competitive.
The maximum value of
the benefits is unlikely to
exceed 10% of salary.
Benefits include life insurance,
permanent health insurance,
private medical insurance, dental
insurance, health screening /
assessment, critical Illness, interest
free season ticket loans, gym
membership, eye tests, cycle to
work, childcare vouchers, dining
card, travel insurance, club
membership and car allowance.
Where appropriate, other benefits
may be offered including, but not
limited to, allowances for
relocation and other expatriate
benefits to perform his or her role.
CMC Markets plcAnnual Report 2016Governance reportGovernance report Purpose and link to strategy
Operation
Maximum opportunity
Performance measures
Purpose and link to strategy
Operation
Maximum opportunity
Performance measures
Annual Incentive
94
To reinforce and reward
delivery of annual strategic
business priorities.
Performance is measured on an
annual basis for each financial year.
Awards may be up to
120% of salary.
Payout for threshold
performance is up to
25% of maximum;
payment for
performance ‘ in line with
expectations’ is up to
70% of maximum.
In the event that there is
no annual incentive as a
result of Group financial
performance, the
Committee has
discretion to award a
bonus of up to 20% of
salary for exceptional
individual performance.
Performance conditions and
targets are reviewed prior to the
start of the year to ensure they are
appropriate, stretching and
reinforce the business strategy.
At the end of the year the
Committee determines the extent
to which these were achieved.
Incentive awards are discretionary.
Awards are paid in cash. The
Committee may defer up to 50% of
any incentive in shares for up to
three years, or longer if regulations
require.
Dividend equivalents may accrue
on deferred share awards and be
paid on those shares which vest.
Awards under the annual incentive
are non-pensionable. Unpaid/
unvested awards are subject to
malus and paid/vested awards are
subject to clawback for a three
year period from award in the
event of a material financial
misstatement, gross misconduct,
calculation error, failure of risk
management, or in any other
circumstance the Committee
considers appropriate.
Performance is assessed
against Group and
individual performance.
A pool is determined by
reference to the actual
level of profit achievement
compared to performance
targets and is capped.
Once the pool is defined, it
is allocated to the
individuals based on their
individual objectives and
behaviour.
For the year ending 31
March 2017, Group
performance is to be based
on profit and subject to the
Committee’s assessment
that the outcome is
achieved within the risk
appetite of the Company,
and individual performance
is to be based on the
achievement of non-
financial/strategic
objectives, the individual’s
contribution and
behaviour, and compliance
with the Company’s risk
appetite.
Measures selected and
their respective weightings
may vary from year to year
depending on strategic
priorities.
The Committee may adjust
the incentive outcome to
ensure alignment of pay
with the underlying
performance of the
business over the financial
year. Factors the
Committee considers
include whether outcomes
were achieved within the
Company’s risk appetite.
2015 Management Equity
Plan (‘LTIP’)
To reinforce delivery of
sustained long-term success,
and align the interests of
participants with those of
shareholders.
Award which is a mix of
shares and options
which will have an
economic value no
higher than an award of
125% of salary in
performance shares in
normal circumstances
and up to 200% of
salary in exceptional
circumstances.
Vesting for threshold
performance is up to
25% of maximum.
95
Awards vest subject to
Company performance and
continued employment.
The performance measures
for 2016 awards are
earnings per share (EPS)
(60% weighting), relative
total shareholder return
(TSR) (30%) and
achievement of strategic
objectives (10%). The
Committee has flexibility
to adjust the performance
measures and weightings
in advance of each future
cycle to ensure they
continue to support
delivery of the Company
strategy. Over the term of
this Policy, performance
will be predominantly
dependent on financial,
and/or share price-related
measures.
The Committee has
flexibility to adjust
downwards the formulaic
outcome based on its
assessment of underlying
performance, and results
being achieved within the
Company’s risk appetite,
over the performance
period.
LTIP awards may be granted
annually by the Remuneration
Committee to Executive Directors.
Awards may consist of
performance shares (nil cost
options or conditional rights to
receive shares) or market value
options or a combination of the
two.
LTIP awards normally vest after
three years. The Committee may
extend the LTIP time horizon by
introducing a holding period of up
to two years, or by extending the
vesting period e.g. if regulations
require.
The number of performance shares
and/or options vesting is
dependent on the degree to which
performance conditions attached
to the LTIP award have been met
over the performance period.
Dividends equivalents may accrue
on performance shares and be paid
on those shares which vest.
The award levels and performance
conditions are reviewed in advance
of grant to ensure they are
appropriate.
Awards under the LTIP are
non-pensionable and are subject to
malus and clawback provisions for
a seven year period from grant in
the event of a material financial
misstatement, gross misconduct,
calculation error, failure of risk
management, or in any other
circumstance the Committee
considers appropriate.
Notes to the policy table
In addition to the elements of remuneration detailed in the Policy Table, any historical awards or commitments described in this
report which were made prior to, but due to be fulfilled after, the approval and implementation of the Remuneration Policy detailed
in this report will be honoured.
In particular, Pre-IPO Retention Awards were granted to Executive Directors, senior management and other key employees to
retain and motivate key talent through listing and beyond. Awards vest 50% on the first and second anniversaries of Listing, subject
to continued employment. Malus and clawback provisions also apply.
CMC Markets plcAnnual Report 2016Governance reportGovernance report Performance measurement selection
The Company’s incentive plans are designed to incentivise the achievement of demanding financial and business-related objectives,
using a balance of absolute and relative performance measures selected to support the Group’s key strategic priorities.
96
The annual incentive uses a balance between Group and individual, and financial and non-financial performance targets. The
Committee has selected Group profit for annual incentive for the year ending 31 March 2017 because it is a key measure of
financial performance and provides management with clear line-of-sight. Group profit targets relating to the annual incentive plan
are set in relation to the Company’s annual budget, which is reviewed and approved by the Board prior to the start of each financial
year. In addition, individual performance for the year ending 31 March 2017 will be assessed based on the achievement of non-
financial/strategic objectives, the individual’s contribution and behaviour, and compliance with the Company’s risk appetite.
Performance objectives and targets are reviewed annually to ensure ongoing alignment with the Company’s strategy for the year
ahead and to ensure that they remain stretching yet achievable. The annual incentive is discretionary and the Committee considers
wider factors in its deliberations at the end of the year, for example the quality of earnings. In determining individual awards, the
Committee is not required to award the Group incentive pool (i.e. the sum of the incentive awards may be less than the Group
incentive pool).
The LTIP is designed to align the interests of our participants with the longer-term interests of the Company’s shareholders by
rewarding them for delivering sustained increases in shareholder value, within the Group’s risk appetite. LTIP performance
measures selected reinforce the Group’s strategy over the medium- to long-term, and provide a balance of internal and external
perspectives, and between absolute and relative performance. The Committee has selected EPS as the primary measure as this is a
well accepted measure of bottom-line financial performance and is well-aligned with shareholder interests. Inclusion of TSR
provides direct alignment with shareholder interests, and achievement of strategic objectives reinforces delivery of the Company’s
strategy over the medium- to long-term. Performance measures and targets are reviewed by the Committee ahead of each grant to
ensure they are appropriately stretching and achievable over the performance period.
Remuneration policy for other employees
CMC Markets’ approach to annual salary reviews is consistent across the Group. All employees are eligible to participate in the
annual incentive, with targets appropriate to their organisational level and business area. Key senior managers are also eligible for
LTIP awards to further support long term alignment with shareholder interests. LTIP performance conditions are consistent for
these employees, while award opportunities may vary by organisational level or business area.
Risk considerations
The remuneration policy is also designed to promote sound and effective risk management. The Remuneration Committee reviews
and approves the remuneration policy for all employees, including for Material Risk Takers and senior Risk and Compliance
employees, to help ensure pay arrangements encourage appropriate behaviour and compliance with the Company’s risk appetite.
For example, all employees receive a salary which reflects their market value, responsibilities and experience. An individual may
only receive an annual incentive award if he/she operates within the risk appetite of the Company, and has demonstrated
appropriate behaviour. Key senior managers are eligible for consideration of LTIP awards, with any vesting based on
performance over at least three years. The Committee has flexibility to adjust the formulaic outcome if the Company’s recorded
performance is not a genuine reflection of underlying business performance or if results were not achieved within the
Company’s risk appetite. Annual incentive awards are subject to malus and clawback for all LTIP participants in various
circumstances, including a failure of risk management. The CFO & Head of Risk is closely involved in the remuneration process to
ensure that both remuneration policy and outcomes reinforce compliance with the Company’s risk appetite, including reporting
independently to the Committee at least annually on compliance with the risk appetite, on any notable risk events, and on the
behaviour of the Material Risk Takers.
Incentive Plan discretions
The Committee will operate the Company’s incentive plans according to their respective rules and the Policy set out above, and in
accordance with relevant financial services regulations, the Listing Rules and HMRC rules where relevant. The 2016 LTIP Rules will
be submitted for approval of shareholders at our September 2016 AGM.
In line with common market practice, the Committee retains discretion as to the operation and administration of these incentive
plans, including with respect to:
• Who participates
• The timing of grant and/or payment
• The size of an award and/or payment (within the plan limits approved by shareholders)
• The manner in which awards are settled
• The choice of (and adjustment of) performance measures and targets in accordance with the Remuneration Policy set out
above and the rules of each plan
• In exceptional circumstances, amendment of any performance conditions applying to an award – provided the new
performance conditions are considered fair and reasonable, and are neither materially more nor materially less challenging
than the original performance targets when set
97
• Discretion relating to the measurement of performance in the event of a variation of share capital, change of control, special
dividend, distribution or any other corporate event which may affect the current or future value of an award
• Determination of a good leaver (in addition to any specified categories) for incentive plan purposes, based on the rules of each
plan and the appropriate treatment under the plan rules
• Adjustments required in certain circumstances (e.g. rights issues, share buybacks, special dividends, other corporate events,
etc.)
Any use of the above discretions would, where relevant, be explained in the Annual Report on Remuneration. As appropriate, it
might also be the subject of consultation with the Company’s major shareholders.
Minor changes
The Committee may make minor amendments to the Policy set out above (for regulatory, exchange control, tax or administrative
purposes or to take account of a change in legislation) without requiring prior shareholder approval for that amendment.
Group’s remuneration policy for Chairman and Non-Executive Directors
The Board determines the Remuneration Policy and level of fees for the Non-Executive Directors, within the limits set out in the
Articles of Association. The Remuneration Committee recommends the Remuneration Policy and level of fees for the Chairman of
the Board. The Company’s Policy is:
Purpose and link to strategy
Operation
Maximum opportunity
Performance measures
Not applicable.
Fee increases are applied in
line with the outcome of the
review.
Aggregate fees will not exceed
the limit approved by
shareholders in the Articles of
Association which is currently
£750,000.
Fees
Annual fee for the Chairman.
To attract suitable individuals
with a broad range of
experience and skills to
oversee shareholders’
interests and company
strategy. Fees are set to
reflect market value of the
role and the individual’s time
commitment, responsibility,
performance and contribution.
Annual base fee for the
Non-Executive Directors.
Additional fees are paid to
Non-Executive Directors for
additional services such as
chairing a Board Committee,
performing the role of Senior
Independent Director, etc.
Fees are reviewed from time
to time taking into account
time commitment,
responsibilities, and fees paid
by companies of a similar size
and complexity. Fee increases
are applied in line with the
outcome of the review.
Payable in cash.
The Company may reimburse
NEDs for reasonable
expenses incurred in carrying
out their role.
CMC Markets plcAnnual Report 2016Governance reportGovernance report Executive Directors’ remuneration scenarios
The charts below provide estimates of the potential future reward opportunity for each of the three Executive Directors, and
the implied split between the different elements of remuneration under three different performance scenarios: ‘Minimum’, ‘In
line with Board expectations’ and ‘Maximum’.
98
£’000
1,000
900
800
700
600
500
400
300
200
100
0
Peter Cruddas
Grant Foley
David Fineberg
46%
55%
100%
54%
45%
£’000
1,000
900
800
700
600
500
400
300
200
100
0
37%
30%
15%
33%
100%
52%
33%
£’000
1,000
900
800
700
600
500
400
300
200
100
0
15%
33%
52%
100%
37%
30%
33%
progress against any performance conditions attached to those awards and an assessment of the likelihood of those conditions
being met.
In cases of appointing a new Executive Director by way of internal promotion, the Remuneration Committee will be consistent with
the Policy for external appointees detailed above. Where an individual has contractual commitments made prior to their promotion
to Executive Director level, the Company will continue to honour these arrangements.
In the case of hiring or appointing a new Non-Executive Director, the Committee will follow the Policy as set out in the table on
page 97.
99
Service contracts
The Executive Directors are employed under contracts of employment with CMC Markets UK Plc. The principal terms of the
Executive Directors’ service contracts are as follows:
Minimum
In line with
expectations
Maximum
Minimum
In line with
expectations
Maximum
Minimum
In line with
expectations
Maximum
Executive Director
Position
Effective date of
contract
Notice period
from Company
Notice period
from Director
Salary
Annual incentive
LTIP
Assumptions underlying each element of remuneration are provided in the table below. The projected value of the long-term
incentives excludes the impact of share price growth and any potential dividend accrual. Actual remuneration delivered, however,
will be influenced by these factors.
Component
Fixed
Base salary
Minimum
Latest salary
In line with expectations
Maximum
Latest salary
Latest salary
Pension
salary
salary
salary
Contribution applies to latest
Contribution applies to latest
Contribution applies to latest
As presented as a single figure on
As presented as a single figure
As presented as a single figure
Other benefits
page 85
Annual incentive
LTIP
No payment
No payment
on page 85
70% of maximum
25% of maximum
on page 85
100% of maximum
100% of maximum
The Company currently anticipates that Peter Cruddas will not participate in the LTIP or pension arrangements during the year
ending 31 March 2017.
Approach to recruitment remuneration
Peter Cruddas
Chief Executive Officer
1 February 2016
12 months
Grant Foley
CFO & Head of Risk
David Fineberg
Group Director of Trading
1 February 2016
1 February 2016
6 months
6 months
12 months
6 months
6 months
The terms shown in the table above are in line with the Company policy of operating notice periods of up to 9 months’ notice
period in the case of Executive Directors, except for the CEO service contract which can have a notice period of up to 12
months. All employees including Executive Directors are subject to a 6 month probation period.
Executive Directors’ contracts are available to view at the Company’s registered office.
Letters of appointment are provided to the Chairman and Non-Executive Directors. Non-Executive Directors have letters of
appointment which means they retire at each AGM and are put up for re-election at the AGM. Non-Executive Directors’ letters of
appointment are available to view at the Company’s registered office.
Details of the effective date of Non-Executive Directors’ letters of appointment and notice periods are set out below:
Non-Executive Director
Simon Waugh
James Richards
Date of letter
25 January 2016
25 January 2016
1 December 2007
1 April 2015
Manjit Wolstenholme
28 September 2015
9 December 2015
Malcolm McCaig
28 September 2015
9 December 2015
3 months
3 months
3 months
3 months
Date of appointment
Notice period
In the case of hiring or appointing a new Executive Director, the Committee may make use of all the existing components of
remuneration.
Exit payment policy
The salaries of new appointees will be determined by reference to their role and responsibilities, experience and skills, relevant
market data, internal relativities and their current salaries. New appointees will be eligible to receive a pension contribution or
allowance and benefits and participate in the Company’s HMRC approved all-employee Share Incentive Plan, in line with the
Remuneration Policy detailed above.
The annual incentive described in the Policy Table will normally apply to new appointees with the relevant maximum being pro-
rated to reflect the period served. Individual objectives will be tailored to the individual’s role. New appointees are eligible for
awards under the LTIP which will normally be on the same terms as other Executive Directors, as described in the Policy Table.
In determining appropriate remuneration for a new Executive Director, the Committee will take into consideration all relevant
factors (including quantum, nature of remuneration and the jurisdiction from which the candidate was recruited from) to ensure
that the remuneration arrangements are appropriate and in the interests of the Company and its shareholders. The Committee
may consider it appropriate to grant an award under a structure not included in the Policy, for example to ‘buy out’ incentive
arrangements forfeited on leaving a previous employer, and may exercise the discretion available under Listing Rule 9.4.2 R if
necessary to secure the right candidate. In doing so, the Committee will ensure the value of any buyout will not exceed the
expected value of awards forgone using a Black-Scholes or equivalent valuation method and, where applicable, take into account
The Company considers termination payments on a case-by-case basis, taking into account relevant contractual terms, the
circumstances of the termination and any applicable duty to mitigate. In such an event, the remuneration commitments in respect
of Executive Directors’ contracts could amount to salary, benefits in kind and pension rights during the notice period, together with
payment in lieu of any accrued but untaken holiday leave, if applicable.
If such circumstances were to arise, the Executive Director concerned would have no claim against the Company for damages or
any other remedy in respect of the termination. The Committee would apply general principles of mitigation to any payment made
to a departing Executive Director and would honour previous commitments as appropriate, considering each case on an individual
basis.
The table overleaf summarises how the awards under the annual incentive and LTIP are typically treated in different leaver
scenarios and on a change of control. The Committee retains discretion on determining ‘good leaver’ status, but it typically defines
a ‘good leaver’ in circumstances such as retirement with agreement of the Board, ill health, injury or disability, death, statutory
redundancy, or part of the business in which the individual is employed or engaged ceasing to be a member of the Group. Final
treatment is subject to the Committee’s discretion.
CMC Markets plcAnnual Report 2016Governance reportGovernance report Regulated entities
101
CMC Markets entity
CMC Markets UK plc
Financial services regulator(s)
Financial Conduct Authority (FCA), UK
CMC Markets UK plc – European branches
FCA, UK; and
Italy
CMC Markets UK plc Succursale di Milano
France
CMC Markets UK plc, France
Germany
Niederlassung Frankfurt am Main der CMC Markets UK plc
Norway
CMC Markets UK plc Filial Oslo
Spain
CMC Markets UK plc, Sucursal en España
Sweden
CMC Markets UK plc Filial Stockholm
Poland
CMC Markets UK Plc Oddział w Warszawie
CMC Markets UK plc – Representative Office:
Commissione Nazionale per le Società e la Borsa (CONSOB), Italy
Autorité des Marchés Financiers (AMF); and
Autorité de Controle Prudential et de resolution (ACPR)
Bundesanstalt fűr Finanzdienstleistungsaufsicht (BaFin), Germany
Finanstilsynet (The Financial Supervisory Authority of Norway)
Comisión Nacional del Mercado de Valores (CNMV), Spain
Finansinspektionen (Financial Supervisory Authority Sweden)
Komisja Nadzoru Finansowego (Polish Financial Supervision
Authority)
Beijing Representative Office of CMC Markets UK plc
China Banking and Regulatory Commission
CMC Spreadbet plc
FCA, UK
CMC Markets Asia Pacific Pty Ltd
Australian Securities and Investments Commission (ASIC)
CMC Markets Pty Ltd
CMC Markets Stockbroking Ltd
CMC Markets Canada Inc.
(Operating as Marches CMC Canada in Quebec)
CMC Markets NZ Ltd
ASIC
ASIC; and
Australia Stock Exchange (ASX)
Investment Industry Regulatory Organization of Canada (IIROC);
Autorité des Marchés Financiers (AMF)
Ontario Securities Commission; and
British Columbia Securities Commission
Financial Markets Authority (New Zealand)
CMC Markets Singapore Pte Ltd
Monetary Authority of Singapore (MAS)
Event
Timing of vesting/award
Calculation of vesting/payment
Annual incentive
‘Good leaver’
100
Annual incentive awards due are
paid at the same time as to
continuing employees
Any unvested deferred share
awards vest on the normal
vesting date
‘Bad leaver’
Not applicable
Change of control1
Annual incentive is paid and
unvested deferred share awards
vest on effective date of change
of control
LTIP
‘Good leaver’
On normal vesting date (or earlier
at the Committee’s discretion)
‘Bad leaver’
Unvested awards lapse
Change of control1
On the date of the event
Annual incentive is paid only to the
extent that any performance
conditions have been satisfied and
is pro-rated for the proportion of
the financial year worked before
cessation of employment
Individuals lose the right to their
annual incentive and unvested
deferred share awards
Annual incentive is paid only to the
extent that any performance
conditions have been satisfied and
is pro-rated for the proportion of
the financial year worked to the
effective date of change of control
Unvested awards vest to the extent
that any performance conditions
have been satisfied and are
pro-rated to reflect the proportion
of the vesting period served
Unvested awards lapse on
cessation of employment
Unvested awards vest to the extent
that any performance conditions
have been satisfied and are
pro-rated to reflect the proportion
of the vesting period served
1 In certain circumstances, the Committee may determine that any deferred share awards under the annual incentive and both unvested and any deferred awards under
the LTIP will not vest on a change of control and instead be replaced by an equivalent grant of a new award, as determined by the Committee, in the new company.
Upon exit or change of control, SIP awards will be treated in line with the approved plan rules.
If employment is terminated by the Company, the departing Executive Director may have a legal entitlement (under statute or
otherwise) to additional amounts, which would need to be met. In addition, the Committee retains discretion to settle other
amounts reasonably due to the Executive Director, for example to meet the legal fees incurred by the Executive Director in
connection with the termination of employment, where the Company wishes to enter into a settlement agreement (as provided for
below) and, in which case, the individual is required to seek independent legal advice.
In certain circumstances, the Committee may approve new contractual arrangements with departing Executive Directors including
(but not limited to) settlement, confidentiality, restrictive covenants and/or consultancy arrangements. These will be used sparingly
and only entered into where the Committee believes that it is in the best interests of the Company and its shareholders to do so.
Consideration of conditions elsewhere in the Group
In making remuneration decisions, the Committee takes into account the pay and employment conditions of employees across the
Group. In particular, the Committee considers the range of base pay increases across the Company as a factor in determining the
base salary increases for Executive Directors. The Committee does not consult with employees on the Executive Director
Remuneration Policy nor does it use any remuneration comparison measurements.
Consideration of shareholder views
The Committee is committed to an on-going dialogue on Directors’ remuneration. It is the Remuneration Committee’s intention to
consult with major shareholders prior to any major changes to its Remuneration Policy.
CMC Markets plcAnnual Report 2016Governance reportGovernance report Directors’ report
The Corporate Governance Report can be found on pages 60 to 107 and, together with this report of which it forms part, fulfils
the requirements of the Corporate Governance Statement for the purpose of the Disclosure and Transparency Rules (“DTR”).
102
Going concern
Having given due consideration to the nature of the Group’s business, the Directors consider that the Company and the Group are
going concerns and the financial statements are prepared on that basis. This treatment reflects the reasonable expectation that the
Group has adequate resources to continue in business for the foreseeable future and the consideration of the various risks set
out on pages 50 to 57 and financial risks described in note 4 to the financial statements.
Viability statement
In accordance with provision C2.2 of the Code, Directors have considered the Group’s current financial position and future
prospects and have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall
due over the period of the assessment.
In reaching this conclusion, both the prospects and viability considerations have been assessed:
Prospects
• the Group’s current financial position as outlined in the Strategic report (pages 36 to 50)
• the Group’s business model: The core of the current strategy has been in place for over three years and continues to
demonstrate delivery of sufficient and growing cash generation to support operations, with average own funds generated
from operating activities of £47.1m per annum over the last three financial years, and a consistently improving capital base
(Total equity of £104.3 million at 31 March 2013 and £176.3 million at 31 March 2016).
• assessment of prospects and assumptions: Conservative expectations of future business prospects through delivery of the
Group strategy (see pages 24 to 25) as presented to the Board through the budget process. The budget process consists of
a detailed bottom up process with a 12 month outlook which involves input from all relevant department and regional
heads. The process includes collection of resource assumptions required to deliver the Group strategy, and associated
revenue impacts with consideration of key risks. This is used in conjunction with external assumptions such as a regulatory
environment which continues to support the Group’s products, market volatility, interest rates and industry growth which
materially impact the business. The budgeting process covers liquidity and capital planning and a three year outlook is
prepared. The budget was reviewed and approved by the Board in March 2016.
• ongoing review and monitoring of risks: These have been identified in the Group’s risk appetite statement, outlined in the
Group’s principal risks and uncertainties (pages 50 to 57) and monitored monthly at the Risk Management Committee, with
review and challenge from the Group Risk Committee.
Viability
• scenario stress testing: Available liquidity and capital adequacy are central to understanding the Group’s viability and therefore
stress scenarios, both regulatory and financial, are considered in the Group’s Individual Capital Adequacy Assessment Process
and Individual Liquidity Adequacy Assessment documents, which are shared with the FCA. The results of the stress testing
showed that due to the robustness of the business the Group would be able to withstand scenarios, including combined
scenarios, over the financial planning period by taking management actions that have been identified within the scenario stress
tests.
The Directors have considered that three years is an appropriate period over which to provide a viability statement as this is the
longest period over which the Board view strategic opportunities and this timeline is also aligned with the period over which
internal stress testing occurs. The Directors have no reason to believe that the Group will not be viable over a longer period, but
given the uncertainty involved believe this period presents the readers of the Annual Report with a reasonable degree of
confidence.
In addition to considering the above, the Group also monitors performance against pre-defined budget expectations and risk
indicators, along with strategic progress updates, which provide early warning to the Board allowing management action to be
taken where required including the assessment of new opportunities.
Directors
All directors will seek election at the 2016 Annual General Meeting (“2016 AGM”) on 7 September 2016. Following
recommendation by the Nomination Committee, a Director may be appointed to the Board by the Board of Directors and will then
be put forward at the following Annual General Meeting for election by the shareholders. The Company’s Articles of Association,
available on the CMC Markets plc Group website, detail the appointment and removal process for Directors.
103
Directors interests can be found in the Directors Remuneration Report on page 87 and other directorships are disclosed on
page 64 to 67.
The Directors who served during the year were:
Simon Waugh
Chairman
Manjit Wolstenholme
Senior Independent Director
(appointed 9 December 2015)
Peter Cruddas
Malcolm McCaig
James Richards
John Jackson
David Fineberg
Grant Foley
Directors’ indemnities
Chief Executive Officer
Non-Executive Director
(appointed 9 December 2015)
Non-Executive Director
(appointed 1 April 2015)
Non-Executive Director
(resigned 30 June 2015)
Group Director of Trading
CFO & Head of Risk
The Company maintains appropriate insurance to cover Directors’ and Officers’ liability which is assessed annually and approved
by the Board. Directors are granted indemnity provisions against section 234, 235 and/or 236 of the Companies Act 2006. No
amount was paid under the Directors’ and Officers’ liability insurance during the year.
Strategic report
The Companies Act 2006 requires the Group to prepare a Strategic report, which commences at the start of this Annual Report
and financial statements up to page 157. The Strategic report includes information about the Group’s operations and business
model, review of the business throughout the year, anticipated future developments, key performance indicators and principal
risks and uncertainties. The use of financial instruments is included in the report and further covered under note 23 to the
consolidated financial statements on page 148. The Group’s vision is to be market leader in global online retail multi-asset
trading. Its strategic objective is to provide superior shareholder returns through the consistent and sustainable delivery of
growth in revenue and improvement to operating margins through operational excellence including product innovation,
technology and service. The strategic objectives to achieve this are also set out in the Strategic report.
Dividends
On 7 June 2016, the Board recommended a final dividend of 5.36 pence per Ordinary Share in respect of the full financial year
ended 31 March 2016, subject to shareholder approval at the 2016 AGM. Further information on dividends is shown in note 14 of
the financial statements and is incorporated into this report by reference.
CMC Markets plcAnnual Report 2016Governance reportGovernance report Share capital
The Company’s share capital comprises Ordinary Shares of 25 pence each and Deferred Shares of 25 pence each. At 31 March
2016 there were 287,923,211 Ordinary and 2,478,086 Deferred Shares in issue.
Company (or an interest which carries 10% or more of the aggregate voting rights in the Company from time to time) or (ii) the
Shares ceasing to be listed on the premium listing segment of the Official List and admitted to trading on the London Stock
Exchange’s main market for listed securities.
Ordinary Shares
Compliance with the UK Corporate Governance Code
During the year:
104
1. The Company issued 7,626,349 Ordinary Shares. 6,239,333 Ordinary Shares were issued to public investors and certain
Non-Executive Directors for a consideration of £14,974,000. In addition, 563,816 were issued to the CMC Markets plc
Employee Share Plan Trust, 477,000 Ordinary Shares were issued to the Employee Share Incentive Plan Trust and 346,200
Ordinary Shares were issued directly to certain employees.
2. Under the CMC Markets Management Equity Plan 2009 (“2009 MEP”), 934,300 options that were previously granted were
cash settled upon listing resulting in nil remaining outstanding at the year-end;
3. Under the CMC Markets Management Equity Plan 2015 (“2015 MEP”) 4,914,300 options over Ordinary Shares were granted
without charge to employees of the Group and 1,641,525 were vested upon listing;
4. Under the UK Share Incentive Plan (“UK SIP”) 477,000 options over Ordinary Shares were granted without charge to
employees of the Group; and
5. No Ordinary Shares were converted to Deferred Shares and the mechanism to enable such a conversion of Ordinary Shares
into Deferred Shares when required ended upon listing.
At the date of this report an aggregate of 2,926,575 options over Ordinary Shares in the Company remain outstanding subject to
the rules of the 2015 MEP and 477,000 options over Ordinary Shares are outstanding subject to the rules of the UK SIP. Further
details of the authorised and issued capital are disclosed in note 26.
The holders of Ordinary Shares are entitled to one vote per share at meetings of the Company. All Ordinary Shares in issue in the
Company rank equally and carry the same voting rights and the same rights to receive dividends and other distributions declared or
paid by the Company.
Deferred Shares
The holders of Deferred Shares do not have the right to receive notice of any general meeting of the Company nor the right to
attend, speak or vote at any such general meeting. The Deferred Shares have no rights to dividends and, on a return of assets in a
winding up, entitles the holder only to the repayment of the amounts paid upon such shares. The Deferred Shares may be
purchased at nominal value at the option of the Company by notice in writing served on the holder of the Deferred Shares. No
application has been made or is currently intended to be made for the Deferred Shares to be admitted to the Official List or to trade
on the London Stock Exchange or any other investment exchange.
Share capital and Directors’ powers
The powers of the Directors, including in relation to the issue or buy back of the Company’s shares, are set out in the Companies
Act 2006 and the Company’s Constitution. The Directors were granted authorities to issue and allot shares and to buy back shares
at a general meeting held 4 February 2016.
Shareholders will be asked to renew these authorities in line with the latest institutional shareholder guidelines at the 2016 AGM.
The Company did not repurchase any of the issued Ordinary Shares during the year and up to the date of this report.
Controlling Shareholder Disclosure
The Company entered into a Relationship Agreement with Peter and Fiona Cruddas (“the Controlling Shareholders”) on
26 January 2016, the terms of which came into force on listing the Company to trade on the main market of the London Stock
Exchange. The principal purpose of the Relationship Agreement is to ensure that the Company is capable at all times of carrying on
its business independently of the Controlling Shareholders and their associates, that transactions and relationships with the
Controlling Shareholders and their associates are at arm’s length and on normal commercial terms (subject to the rules on related
party transactions in the Listing Rules) and to ensure the Controlling Shareholders do not take any action that would prevent the
Company from complying with, or would circumvent, the Listing Rules. The Relationship Agreement will stay in effect until the
earlier of: (i) the Controlling Shareholders ceasing to own in aggregate an interest in at least 10% or more of the Shares in the
Significant contracts and change of control
The Company has a large number of contractual arrangements which it believes are essential to the business of the Company.
These can be split into three main categories, which are a committed bank facility, prime broker arrangements, and market data and
technology contracts. A change of control of the Company may cause the committed bank facility to terminate should the
controlling shareholders holding reduce to below 51%.
105
Statutory information contained elsewhere in the report
Information required to be part of this Directors’ report can be found elsewhere in the annual report as indicated below.
Information
Greenhouse gas emissions
Location in annual report
Page 34
Employees (employment of disabled persons, employee engagement)
Page 30
Disclosure of overseas branches
Employee share schemes
Directors’ long term incentives
Financial instruments
Likely future developments
Directors interests
Related party transactions
Substantial shareholdings
Page 101
Note 28, page 152
Pages 82 to 100
Note 23, Page 148
Page 12 and 24 to 25
Page 62
Page 87
Page 157
Information provided to the Company by substantial shareholders pursuant to the DTRs is published via a Regulatory Information
Service. As at 31 March 2016, the company has been notified under DTR Rule 5 of the interests as set out below in its issued share
capital. All such share capital has the right to vote at general meetings.
As at 3 June 2016 the substantial shareholdings in the Ordinary Shares of the Company remain as stated in the table below.
Shareholder
As at 31 March 2016
Peter Andrew Cruddas
Fiona Jane Cruddas
Goldman Sachs International
Legal & General Investment Management
Henderson Global Investors
Schroders Investment Management
Fidelity Management
* Held directly by Goldman Sachs Securities Nominees.
Ordinary Shares held
% of voting rights
Direct/Beneficial owner
165,155,374
57.36
Beneficial owner*
14,774,532
14,395,894
11,682,538
11,302,835
10,000,000
9,500,000
5.13
5.00
4.06
3.92
3.47
3.30
Direct
Direct
Direct
Direct
Direct
Direct
The shareholdings of CMC Markets plc Directors are listed within the Directors Remuneration Report.
CMC Markets plcAnnual Report 2016Governance reportGovernance report Articles of association
Any amendments to the Company’s Articles of Association may only be made by passing a special resolution at a general meeting of
the shareholders of the Company.
Research and development
106
The Group continues to invest in the development of the CFD and spread bet Next Generation platform in addition to maintaining
existing infrastructure with considerable effort applied by the technical and software development teams. Little expenditure is
capitalised and is therefore expensed when it is incurred. £nil of development expenditure has been capitalised during the year
(2015: £nil).
Directors’ statement as to disclosure of information to Auditors
So far as each person who was a Director at the date of approving this report is aware, there is no relevant audit information, being
information needed by the auditors in connection with preparing their report, of which the auditors are unaware of. Each Director
has taken all the steps that he or she is obliged to take as a Director in order to make himself/herself aware of any relevant audit
information and to establish that the Company’s auditor is aware of that information. This confirmation is given pursuant to section
418 of the Companies Act 2006.
Independent auditor
PricewaterhouseCoopers LLP acted as auditors throughout the year. In accordance with s489 and s492 of the Companies Act
2006, resolutions proposing the re-appointment of PricewaterhouseCoopers LLP as the Company’s auditors and authorising the
Directors to determine the auditors’ remuneration will be put to the 2016 AGM.
Political donations
No political donations were made by the Company during the year.
Annual General Meeting
The 2016 AGM is to be held at 133 Houndsditch, London EC3A 7BX at 10.00am on Wednesday 7 September 2016.
Statement of Directors’
Responsibilities
107
Companies Act 2006 and, as regards the Group Financial
Statements, Article 4 of the IAS Regulation. They are also
responsible for safeguarding the assets of the Group and hence
for taking reasonable steps for the prevention and detection of
fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information on the Company’s
website. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
Responsibilities statement
We confirm that to the best of our knowledge:
• the Group Financial Statements, which have been prepared
in accordance with IFRSs as adopted by the EU, give a true
and fair view of the assets, liabilities, financial position and
results of the Group; and
• the Strategic Report contained in this Annual Report
includes a fair review of the development and performance
of the business and the position of the Company and the
Group, together with a description of the principal risks and
uncertainties that they face; and
• the Annual Report and Accounts, taken as a whole, is fair,
balanced and understandable and provides the information
necessary for shareholders to assess the Company’s
performance, business model and strategy
The Annual Report was approved by the Board on 7 June 2016.
By order of the Board
Jonathan Bradshaw
Company Secretary
7 June 2016
CMC Markets plc
Registered number: 05145017
The Directors are responsible for preparing the Strategic
report, Directors’ report and the Financial Statements in
accordance with applicable law and regulations. As a listed
company within the European Union, the Directors are required
to prepare the Group Financial Statements in accordance with
International Financial Reporting Standards (‘IFRSs’) as adopted
by the EU. The Directors have elected to prepare the Parent
Company Financial Statements in accordance with the
Companies Act 2006 and IFRSs as adopted by the EU.
Under company law the Directors must not approve the
Financial Statements unless they are satisfied that they give a
true and fair view of the state of affairs of the Group and the
Company and of the profit or loss of the Group for that period.
In preparing the Financial Statements, the Directors are
required to:
• select suitable accounting policies and then apply them
consistently;
• make judgements and estimates that are reasonable and
prudent;
• present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
• in respect of the Group Financial Statements, provide
additional disclosures when compliance with the specific
requirements of IFRS is insufficient to enable users to
understand the impact of particular transactions, other
events and conditions on the Group’s financial position
and performance;
• state that the Group has complied with IFRS, subject to any
material departures disclosed and explained in the
Financial Statements;
• in respect of the Parent Company Financial Statements,
state whether applicable UK accounting standards have
been followed, subject to any material departures disclosed
and explained in the Financial Statements; and prepare the
Financial Statements on a going concern basis, unless
they consider that to be inappropriate
The Directors confirm that the Financial Statements comply
with the above requirements.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time
the financial position of the Company and the Group and enable
them to ensure that the Financial Statements comply with the
CMC Markets plcAnnual Report 2016Governance reportGovernance report Independent auditors’ report to the members
of CMC Markets plc
Report on the financial statements
Our opinion
108
In our opinion:
• CMC Markets plc’s Group financial statements and parent
company financial statements (the “financial statements”)
give a true and fair view of the state of the Group’s and
of the parent company’s affairs as at 31 March 2016 and of
the Group’s and the parent company’s profit and cash flows
for the year then ended;
• the Group financial statements have been properly
prepared in accordance with International Financial
Reporting Standards (“IFRSs”) as adopted by the
European Union;
• the parent company financial statements have been
properly prepared in accordance with IFRSs as adopted by
the European Union and as applied in accordance with the
provisions of the Companies Act 2006; and
• the financial statements have been prepared in
accordance with the requirements of the Companies Act
2006 and, as regards the Group financial statements,
Article 4 of the IAS Regulation.
What we have audited
The financial statements, included within the Annual Report
and Financial Statements (the “Annual Report”), comprise:
• the consolidated and parent company statements of
financial position as at 31 March 2016;
• the consolidated income statement and the consolidated
statement of comprehensive income for the year then
ended;
• the consolidated and parent company statements of cash
flows for the year then ended;
• the consolidated and parent company statements of
changes in equity for the year then ended; and
• the notes to the financial statements, which include
a summary of significant accounting policies and other
explanatory information.
Certain required disclosures that have been presented
elsewhere in the Annual Report, rather than in the notes
to the financial statements. These are cross-referenced from
the financial statements and are identified as audited.
The financial reporting framework that has been applied in the
preparation of the financial statements is IFRSs as adopted by
the European Union, and applicable law and as regards the
parent company financial statements, as applied in accordance
with the provisions of the Companies Act 2006.
Our audit approach
Context
On 5 February 2016 CMC Markets plc listed its ordinary
shares on the London Stock Exchange. Our audit was planned
in anticipation of the listing and therefore we haven’t had to
amend our audit plan during the year end from what was
originally presented to the Audit Committee. As a result of the
listing process, there were exceptional expenses incurred by
the Group, which is one of the areas of focus for us this year.
Overview
Materiality
• Overall group materiality: £2.675 million which represents 5% of profit before tax.
Scope
• The Group consists of a UK holding Company with a number of subsidiary entities and branches
containing the operating businesses of both the UK and overseas territories. The accounting records
for both the UK and overseas businesses are primarily maintained and controlled by the UK finance
team in London.
• We determined the appropriate work to perform based on the consolidated balances of the group.
As a result, the majority of the audit work was performed by the Group audit team in London, with
certain, specified audit procedures carried out by overseas PwC engagement teams where necessary.
• Balances within the scope of our audit contributed 86% of Group total assets. Audit coverage on
account balances in the consolidated income statement ranged between 80% and 100%.
Areas of focus
• Revenue recognition.
• Disclosure and classification of exceptional items.
The scope of our audit and our areas of focus
We conducted our audit in accordance with International
Standards on Auditing (UK and Ireland) (“ISAs (UK & Ireland)”).
We designed our audit by determining materiality and
assessing the risks of material misstatement in the financial
statements. In particular, we looked at where the directors
made subjective judgements, for example in respect of
significant accounting estimates that involved making
assumptions and considering future events that are inherently
uncertain. As in all of our audits we also addressed the risk of
management override of internal controls, including evaluating
whether there was evidence of bias by the directors that
represented a risk of material misstatement due to fraud.
The risks of material misstatement that had the greatest effect
on our audit, including the allocation of our resources and
effort, are identified as “areas of focus” in the table below.
We have also set out how we tailored our audit to address
these specific areas in order to provide an opinion on the
financial statements as a whole, and any comments we make
on the results of our procedures should be read in this
context. This is not a complete list of all risks identified
by our audit.
109
Area of focus
How our audit addressed the area of focus
Revenue recognition
The Group gives its clients access to a broad range of financial markets
We use data analytics and account mapping to perform a full
reconciliation of all account balances recorded in the trading systems
predominantly through provision of spreadbetting and contract-for-
to the general ledger. This is performed for every balance in those
difference (“CFD”) market-making activities.
trading systems for the entire year. We did not identify any material
differences.
All of the client trading transactions which lead to revenue and the
Group’s related hedging transactions are recorded in the NextGen
As each transaction ultimately has a cash impact we tested the cash
and MarketMaker systems, and the net position at each month end is
reconciliation controls throughout the year. We also agreed all cash
recorded in the Oracle general ledger.
accounts to external third party evidence through a combination of
independent confirmations and examination of bank statements.
We have focused on this area because it is a key driver
of substantially all of the revenue in the Group.
Finally, to address the risk that improper transactions had been
entered into the trading systems, we read a sample of customer
complaints as well as testing a sample of accounts for authenticity to
identify any instances where revenue might have been improperly
recognised.
We did not identify any material exceptions.
Disclosure and classification of exceptional items
The Group has an accounting policy in relation to the disclosure of
We assessed the appropriateness of the Group’s accounting
policy and whether those items disclosed as exceptional items
exceptional items. All exceptional items are ordinarily recorded in the
were consistent with the accounting policy. We found the Group’s
financial statements, however are disclosed separately on the face of
accounting policy to be appropriate and the classification of these
the Income Statement. Three instances gave rise to exceptional items
exceptional items to be consistent with the accounting policy.
in the current year. One of these related to income received on a legal
settlement, and the other two were expenses incurred in the listing
We understood the nature of each of the exceptional items (e.g.
process.
litigation settlement, listing costs and share based payment expenses)
through discussion with management and examination of the relevant
The decision whether to disclose items as exceptional or not is
accounting memos. All amounts have been agreed to actual cash
a judgemental one, and there is additional risk involved as the
payments and receipts, as well as invoices where applicable.
“underlying” profit before tax (excluding exceptional items) is a
key metric for measuring senior management’s performance and
We have also considered whether the population of exceptional
for discussing the performance of the Group. As such there is a
items is complete. Specifically we have considered whether any
heightened disclosure risk that exceptional debits are overstated or
additional income amounts should be disclosed as exceptional.
exceptional credits understated to increase reported underlying profit.
Based on our analysis we did not identify any additional exceptional
items to be included in the disclosure.
CMC Markets plcAnnual Report 2016Independent auditors’ reportIndependent auditors’ report We agreed with the Audit Committee that we would report
to them misstatements identified during our audit above
£133,000 as well as misstatements below that amount that,
in our view, warranted reporting for qualitative reasons.
Going concern
Under the Listing Rules we are required to review the
directors’ statement, set out on page 102, in relation to going
concern. We have nothing to report having performed
our review.
Under ISAs (UK & Ireland) we are required to report to you
if we have anything material to add or to draw attention to
in relation to the directors’ statement about whether they
considered it appropriate to adopt the going concern basis in
preparing the financial statements. We have nothing material
to add or to draw attention to.
As noted in the directors’ statement, the directors have
concluded that it is appropriate to adopt the going concern
basis in preparing the financial statements. The going concern
basis presumes that the group and parent company have
adequate resources to remain in operation, and that the
directors intend them to do so, for at least one year from the
date the financial statements were signed. As part of our audit
we have concluded that the directors’ use of the going
concern basis is appropriate. However, because not all future
events or conditions can be predicted, these statements are
not a guarantee as to the group’s and parent company’s ability
to continue as a going concern.
Other required reporting
Consistency of other information
Companies Act 2006 opinions
In our opinion the information given in the Strategic Report and
the Directors’ Report for the financial year for which the
financial statements are prepared is consistent with the
financial statements.
110
How we tailored the audit scope
We tailored the scope of our audit to ensure that we
performed enough work to be able to give an opinion on the
financial statements as a whole. In scoping our audit work we
took into account the geographic structure of the group, the
location of accounting processes and controls, and the
industry in which the group operates.
CMC Markets is an online retail financial services business that
provides its clients with online and mobile financial spread
betting (UK and Ireland only) and contract for difference (CFD)
trading platforms. CMC Markets is a global company with
significant operations in the UK, Europe and Asia Pacific. The
Group also has a stockbroking offering in Australia.
The Group consists of a UK holding Company with a number
of subsidiary entities and branches containing the operating
businesses of both the UK and overseas territories. The
accounting records for both the UK and overseas businesses
are primarily maintained and controlled by the UK finance
team in London. We determined the appropriate work to
perform based on the consolidated balances of the group, the
areas of focus as noted above, known or historical accounting
issues and the desire to include some unpredictability in our
audit procedures.
As a result of our scoping, the only material components were
the UK legal entities (including the European branches) and we
have performed a full scope audit of these entities. In addition
to this it was possible for us to perform testing in the UK for all
spread betting and CFD revenue. As a result, the majority of the
audit work was performed by the Group audit team in London,
with certain, specified audit procedures carried out by PwC
Australia over cash, deferred tax and stockbroking revenue.
Materiality
The scope of our audit was influenced by our application of
materiality. We set certain quantitative thresholds for
materiality. These, together with qualitative considerations,
helped us to determine the scope of our audit and the nature,
timing and extent of our audit procedures on the individual
financial statement line items and disclosures and in evaluating
the effect of misstatements, both individually and on the
financial statements as a whole.
Based on our professional judgement, we determined
materiality for the financial statements as a whole as follows:
Overall group
materiality
How we
determined it
Rationale for
benchmark
applied
£2.675 million
5% of profit before tax
We have used profit before tax as the
materiality benchmark as it is the most
relevant metric against which the
performance of the Group is measured.
ISAs (UK & Ireland) reporting
Under ISAs (UK & Ireland) we are required to report to you if, in our opinion:
• information in the Annual Report is:
ҽ materially inconsistent with the information in the audited financial statements; or
ҽ apparently materially incorrect based on, or materially inconsistent with, our knowledge
of the group and parent company acquired in the course of performing our audit; or
We have no exceptions
to report.
111
ҽ otherwise misleading.
• the statement given by the directors on page 72, in accordance with provision C.1.1 of
the UK Corporate Governance Code (the “Code”), that they consider the Annual Report
taken as a whole to be fair, balanced and understandable and provides the information
necessary for members to assess the group’s and parent company’s position and
performance, business model and strategy is materially inconsistent with our knowledge
of the group and parent company acquired in the course of performing our audit.
We have no exceptions
to report.
• the section of the Annual Report on page 75, as required by provision C.3.8 of the
Code, describing the work of the Audit Committee does not appropriately address
matters communicated by us to the Audit Committee.
We have no exceptions
to report.
The directors’ assessment of the prospects of the group and of the principal risks that would threaten the solvency
or liquidity of the group
Under ISAs (UK & Ireland) we are required to report to you if we have anything material to add or to
draw attention to in relation to:
• the directors’ confirmation on page 51 of the Annual Report, in accordance with provision
C.2.1 of the Code, that they have carried out a robust assessment of the principal risks
facing the group, including those that would threaten its business model, future
performance, solvency or liquidity.
• the disclosures in the Annual Report that describe those risks and explain how they are
being managed or mitigated.
• the directors’ explanation on page 102 of the Annual Report, in accordance with provision
C.2.2 of the Code, as to how they have assessed the prospects of the group, over what
period they have done so and why they consider that period to be appropriate, and their
statement as to whether they have a reasonable expectation that the group will be able to
continue in operation and meet its liabilities as they fall due over the period of their
assessment, including any related disclosures drawing attention to any necessary
qualifications or assumptions.
We have nothing material to
add or to draw attention to.
We have nothing material to
add or to draw attention to.
We have nothing material to
add or to draw attention to.
Under the Listing Rules we are required to review the directors’ statement that they have carried out a robust assessment of
the principal risks facing the group and the directors’ statement in relation to the longer-term viability of the group. Our
review was substantially less in scope than an audit and only consisted of making inquiries and considering the directors’
process supporting their statements; checking that the statements are in alignment with the relevant provisions of the Code;
and considering whether the statements are consistent with the knowledge acquired by us in the course of performing our
audit. - We have nothing to report having performed our review.
CMC Markets plcAnnual Report 2016Independent auditors’ reportIndependent auditors’ report Adequacy of accounting records and information and
explanations received
Under the Companies Act 2006 we are required to report to
you if, in our opinion:
112
• we have not received all the information and explanations
we require for our audit; or
• adequate accounting records have not been kept by the
parent company, or returns adequate for our audit have
not been received from branches not visited by us; or
• the parent company financial statements and the part of
the Directors’ Remuneration Report to be audited are not
in agreement with the accounting records and returns.
We have no exceptions to report arising from this
responsibility.
Directors’ remuneration
Directors’ remuneration report – Companies Act 2006 opinion
In our opinion, the part of the Directors’ Remuneration Report
to be audited has been properly prepared in accordance with
the Companies Act 2006.
Other Companies Act 2006 reporting
Under the Companies Act 2006 we are required to report to
you if, in our opinion, certain disclosures of directors’
remuneration specified by law are not made. We have no
exceptions to report arising from this responsibility.
Corporate governance statement
Under the Companies Act 2006 we are required to report to
you if, in our opinion, a corporate governance statement has
not been prepared by the parent company. We have no
exceptions to report arising from this responsibility.
Under the Listing Rules we are required to review the part of
the Corporate Governance Statement relating to ten further
provisions of the Code. We have nothing to report having
performed our review.
Responsibilities for the financial statements
and the audit
This report, including the opinions, has been prepared for and
only for the parent company’s members as a body in
accordance with Chapter 3 of Part 16 of the Companies Act
2006 and for no other purpose. We do not, in giving these
opinions, accept or assume responsibility for any other
purpose or to any other person to whom this report is shown
or into whose hands it may come save where expressly agreed
by our prior consent in writing.
What an audit of financial statements involves
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free
from material misstatement, whether caused by fraud or error.
This includes an assessment of:
• whether the accounting policies are appropriate to the
group’s and the parent company’s circumstances and have
been consistently applied and adequately disclosed;
• the reasonableness of significant accounting estimates
made by the directors; and
• the overall presentation of the financial statements.
We primarily focus our work in these areas by assessing the
directors’ judgements against available evidence, forming our
own judgements, and evaluating the disclosures in the
financial statements.
We test and examine information, using sampling and other
auditing techniques, to the extent we consider necessary to
provide a reasonable basis for us to draw conclusions. We
obtain audit evidence through testing the effectiveness of
controls, substantive procedures or a combination of both.
In addition, we read all the financial and non-financial
information in the Annual Report to identify material
inconsistencies with the audited financial statements and to
identify any information that is apparently materially incorrect
based on, or materially inconsistent with, the knowledge
acquired by us in the course of performing the audit. If we
become aware of any apparent material misstatements or
inconsistencies we consider the implications for our report.
Our responsibilities and those of the directors
As explained more fully in the Statement of Directors’
responsibilities set out on page 107, the directors are
responsible for the preparation of the financial statements and
for being satisfied that they give a true and fair view.
Hemione Hudson (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
7 June 2016
Our responsibility is to audit and express an opinion on the
financial statements in accordance with applicable law and
ISAs (UK & Ireland). Those standards require us to comply with
the Auditing Practices Board’s Ethical Standards for Auditors.
Financial statements
Consolidated income statement
For the year ended 31 March 2016
GROUP
£‘000
Revenue
Interest income
Total revenue
Rebates and levies
Net operating income
Other income
Operating expenses
EBITDA1
Analysed as:
EBITDA before exceptional items2
Exceptional income
Exceptional costs
EBITDA1
Depreciation and amortisation
Operating profit
Finance costs
Profit before taxation
Analysed as:
Profit before taxation and exceptional items
Exceptional income
Exceptional costs
Profit before taxation
Taxation
Profit for the year attributable to owners of the parent
Earnings per share
Basic earnings per share (p)
Diluted earnings per share (p)
Year ended
Year ended
31 March
31 March
113
Note
2016
2015
186,397
155,755
6
5
7
8
7
8
11
10
11
7
8
12
13
13
1,762
188,159
(18,812)
169,347
3,135
(112,277)
60,205
69,168
3,135
(12,098)
60,205
(6,057)
54,148
(772)
53,376
62,339
3,135
(12,098)
53,376
(10,915)
42,461
2,118
157,873
(14,221)
143,652
–
(92,312)
51,340
59,774
–
(8,434)
51,340
(6,934)
44,406
(896)
43,510
51,944
–
(8,434)
43,510
(8,770)
34,740
15.1p
15.0p
12.4p
12.4p
1 EBITDA represents earnings before interest, tax, depreciation and amortisation and impairment of intangible assets, but includes interest income classified as trading revenue.
2 EBITDA before exceptional items represents Underlying EBITDA.
As permitted by Section 408 of the Companies Act 2006, the Company has not presented its own income statement or
statement of comprehensive income. The profit for the year ended 31 March 2016 dealt within the financial statements of the
Company was £7,708,000 (2015: £10,000 Loss). The Company had no other comprehensive income.
CMC Markets plcFinancial statementsAnnual Report 2016Independent auditors’ report Consolidated statement of comprehensive income
For the year ended 31 March 2016
Consolidated and parent company statements of financial position
At 31 March 2016
GROUP
£‘000
Profit for the year
Other comprehensive (expense) / income:
114
Items that may be subsequently reclassified to income statement
(Loss) / Profit on net investment hedges net of tax
Profit recycled from equity to the income statement net of tax
Currency translation differences
Change in value of available-for-sale financial assets
Other comprehensive income / (expense) for the year
Total comprehensive income for the year attributable to owners of the parent
Note
29
29
29
Year ended
Year ended
31 March
31 March
2016
42,461
2015
34,740
(1,172)
61
1,563
4
456
42,917
1,063
–
(1,485)
–
(422)
34,318
£’000
ASSETS
Non-current assets
Intangible assets
Property, plant and equipment
Investment in subsidiary undertakings
Deferred tax assets
Total non-current assets
Current assets
Trade and other receivables
Derivative financial instruments
Financial investments
Amounts due from brokers
Cash and cash equivalents
Total current assets
TOTAL ASSETS
LIABILITIES
Current liabilities
Trade and other payables
Derivative financial instruments
Borrowings
Current tax payable
Short term provisions
Total current liabilities
Non-current liabilities
Trade and other payables
Borrowings
Deferred tax liabilities
Long term provisions
Total non-current liabilities
TOTAL LIABILITIES
EQUITY
Equity attributable to owners of the Company
Share capital
Share premium
Own shares held in trust
Other reserves
Retained earnings
Total equity
TOTAL EQUITY AND LIABILITIES
GROUP
COMPANY
31 March
31 March
31 March
31 March
Note
2016
2015
2016
2015
15
16
17
25
18
23
19
20
21
23
22
24
21
22
25
24
26
26
27
29
115
2,649
16,350
–
7,701
3,658
17,376
–
–
–
–
–
167,036
162,576
7,552
–
26,700
28,586
167,036
162,576
20,931
795
20,374
84,230
78,280
18,766
3,275
–
109,794
38,611
204,610
170,446
–
–
–
–
15,000
15,000
35,444
–
–
–
–
35,444
231,310
199,032
182,036
198,020
34,738
38,723
36,970
54,014
4,996
1,355
7,758
160
805
1,399
3,507
4,345
–
–
–
–
–
–
3
–
49,007
48,779
36,970
54,017
3,479
1,085
5
1,407
5,976
3,926
2,453
128
1,423
7,930
–
–
–
–
–
–
–
–
–
–
54,983
56,709
36,970
54,017
72,600
46,243
(984)
(49,513)
107,981
70,694
33,362
(1,983)
(49,969)
90,219
72,600
46,243
–
–
70,694
33,362
–
–
26,223
39,947
176,327
142,323
145,066
144,003
231,310
199,032
182,036
198,020
The financial statements on pages 113 to 157 were approved by the Board of Directors on 7 June 2016 and signed on
its behalf by:
Peter Cruddas, Chief Executive Officer
Grant Foley, Chief Financial Officer & Head of Risk
CMC Markets plcAnnual Report 2016Financial statementsFinancial statements
Consolidated and parent company statements of changes in equity
Consolidated and parent company statements of cash flows
For the year ended 31 March 2016
For the year ended 31 March 2016
GROUP
£‘000
At 1 April 2014
Total comprehensive (expense) / income
116
for the year
Share-based payments
Dividends
At 31 March 2015
New shares issued
Total comprehensive income for the year
Disposal of own shares held in trust
Share-based payments
Tax on share-based payments
Dividends
At 31 March 2016
Share
capital
70,694
Share
Own shares
premium
held in trust
33,362
(1,983)
–
–
–
–
–
–
70,694
1,906
33,362
12,881
–
–
–
–
–
–
–
–
–
–
–
–
–
(1,983)
–
–
999
–
–
–
Other
reserves
(49,547)
(422)
–
–
(49,969)
–
456
–
–
–
–
Retained
earnings
Total
Equity
67,055
119,581
34,740
374
(11,950)
90,219
–
42,461
–
205
31
34,318
374
(11,950)
142,323
14,787
42,917
999
205
31
(24,935)
(24,935)
72,600
46,243
(984)
(49,513)
107,981
176,327
Total equity is attributable to owners of the Company
£’000
Cash flows from operating activities
Cash generated from operations
Net interest income
Tax paid
Net cash generated from operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Investment in intangible assets
Purchase of financial investments
Proceeds from maturity of financial investments and coupon receipts
Investment in subsidiaries
Dividends received
COMPANY
£‘000
At 1 April 2014
Total comprehensive expense for the year
Share-based payments
Dividends
At 31 March 2015
New shares issued
Total comprehensive income for the year
Share-based payments
Dividends
At 31 March 2016
Share
capital
70,694
–
–
–
70,694
1,906
–
–
–
Share
premium
33,362
–
–
–
33,362
12,881
–
–
–
Retained
earnings
51,533
(10)
374
(11,950)
39,947
–
7,708
3,503
Total
Equity
155,589
(10)
374
(11,950)
144,003
14,787
7,708
3,503
(24,935)
(24,935)
72,600
46,243
26,223
145,066
Cash flows from financing activities
Repayment of borrowings
Proceeds from borrowings
Proceeds from issue of ordinary shares
Disposal of own shares
Dividends paid
Finance costs
Net cash used in financing activities
Net increase / (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effect of foreign exchange rate changes
Cash and cash equivalents at the end of the year
GROUP
COMPANY
Year ended
Year ended
Year ended
Year ended
31 March
31 March
31 March
31 March
Note
2016
2015
2016
2015
117
6,362
2,118
(6,471)
14,277
11,982
–
(3)
–
(4)
2,009
14,274
11,978
30
80,061
1,762
(6,872)
74,951
(2,900)
59
(1,092)
(20,633)
287
–
–
(8,584)
136
(1,866)
–
–
–
–
–
–
–
–
–
(4,126)
15,000
10,874
–
–
14,787
–
–
–
–
–
–
–
–
–
–
–
–
(1,412)
–
14,787
999
(1,524)
4,402
-
–
(24,935)
(11,950)
(24,935)
(11,950)
(772)
(896)
–
(28)
(11,333)
(9,968)
(10,148)
(11,978)
39,339
38,611
330
78,280
(18,273)
57,801
(917)
15,000
–
–
38,611
15,000
–
–
–
–
Net cash used in investment activities
(24,279)
(10,314)
CMC Markets plcAnnual Report 2016Financial statementsFinancial statements Financial statements
Notes to the financial statements
1. General information
Corporate information
Index
1. General information
2. Basis of preparation
118
3. Summary of significant accounting policies
4. Financial risk management
5. Segmental reporting
6.
Interest income
7. Other income
8. Operating expenses
9. Employee information
10. Finance costs
11. Profit before taxation
12. Taxation
13. Earnings per share (EPS)
14. Dividends
15. Intangible assets
16. Property, plant and equipment
17. Investment in subsidiary undertakings
18. Trade and other receivables
19. Financial investments
20. Cash and cash equivalents
21. Trade and other payables
22. Borrowings
23. Derivative financial instruments
24. Provisions
25. Deferred tax
26. Share capital and premium
27. Own shares held in trust
28. Share-based payment
29. Other reserves
30. Cash generated from operations
31. Operating lease commitments
32. Retirement benefit plans
33. Related party transactions
34. Ultimate controlling party
CMC Markets plc (the Company) is a company incorporated and domiciled in England and Wales under the Companies Act
2006. The nature of the operations and principal activities of the CMC Markets plc and its subsidiaries (collectively the “Group”)
are set out in note 5.
Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary
economic environment in which the entity operates (‘the functional currency’). The financial statements are presented in Sterling
(GBP) which is the Company’s functional and the Group’s presentation currency. Foreign operations are included in accordance
with the policies set out in note 3.
119
2. Basis of preparation
Basis of accounting
The financial statements have been prepared in accordance with the International Financial Reporting Standards as adopted by
the European Union (“IFRS”), IFRS Interpretations Committee (“IFRS IC”) interpretations as adopted by the European Union and
the Companies Act 2006 applicable to companies reporting under IFRS.
The financial statements have been prepared in accordance with the going concern basis, under the historical cost convention,
except in the case of “Financial instruments at fair value through profit or loss” and “Available for sale financial assets”. The
financial information is rounded to the nearest thousand, except where otherwise indicated.
The Group principal accounting policies adopted in the preparation of these financial statements are set out in note 3 below.
These policies have been consistently applied to all years presented. The financial statements presented are at and for the years
ending 31 March 2016 and 31 March 2015. Financial annual years are referred to as 2016, and 2015 in the financial statements.
Changes in accounting policy and disclosures
Application of new and revised accounting standards
The group has applied the following standards and amendments for the first time for their annual reporting period commencing
1 April 2015:
• Annual Improvements to IFRSs – 2010-2012 Cycle and 2011 – 2013 Cycle. One of the annual improvements requires
entities to disclose judgements made by management in applying the aggregation criteria set out in paragraph 12 of IFRS 8
Operating segments. The Group has aggregated several operating segments into a single operating segment. The
application of other amendments has had no material impact on the disclosures or amounts recognised in the Group’s
consolidated financial statements.
New accounting standards in issue but not yet effective
At the date of authorisation of the financial statements, the following new Standards and Interpretations relevant to the Group
were in issue but not yet effective and have not been applied to the financial statements:
• IFRS 9, ‘Financial instruments: classification and measurement’, will replace IAS 39, ‘Financial instruments: Recognition and
measurement.’ IFRS 9 has three measurement categories: amortised cost, fair value through profit or loss and fair value
through other comprehensive income. All equity instruments are measured at fair value. A debt instrument is measured at
amortised cost only if the entity is holding it to collect contractual cash flows and the cash flows represent principal and
interest. For liabilities, the standard retains most of the IAS 39 requirements. These include amortised-cost accounting for
most financial liabilities, with bifurcation of embedded derivatives. The main change is that, in cases where the fair value
option is taken for financial liabilities, the part of a fair value change due to an entity’s own credit risk is recorded in other
comprehensive income rather than the income statement. The Group is yet to assess the full impact of IFRS 9, but intends
to adopt the Standard no later than the accounting year beginning 1 April 2018, subject to endorsement by the EU.
• IFRS 15, ‘Revenue from contracts with customers’ deals with revenue recognition and establishes principles for reporting
useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash
flows arising from an entity’s contracts with customers. Revenue is recognised when a customer obtains control of a good
or service and thus has the ability to direct the use and obtain the benefits from the good or service. The standard replaces
CMC Markets plcAnnual Report 2016Financial statementsFinancial statements IAS 18 ‘Revenue’ and IAS 11 ‘Construction contracts’ and related interpretations. The Group is yet to assess the full impact
of IFRS 15, but intends to adopt the Standard no later than the accounting year beginning 1 April 2018, subject to
endorsement by the EU.
• IFRS 16, ‘Leases’ addresses the definition of a lease, recognition and measurement of leases and establishes principles for
reporting useful information to users of financial statements about the leasing activities of both lessees and lessors. A key
change arising from IFRS 16 is that most operating leases will be accounted for on balance sheet for lessees. The standard
replaces IAS 17 ‘Leases’, and related interpretations. The standard is effective for annual periods beginning on or after
1 January 2019 and earlier application is permitted subject to EU endorsement and the entity adopting IFRS 15 ‘Revenue
from contracts with customers’ at the same time. The Group is yet to assess the full impact of IFRS 16, but intends to adopt
the Standard no later than the accounting year beginning 1 April 2019, subject to endorsement by the EU.
120
Basis of consolidation
The financial statements incorporate the financial information of the Company and its subsidiaries. Subsidiaries are all entities
over which the Group has control. The group controls an entity when the group is exposed to, or has rights to, variable
returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities
of the entity.
CMC Markets plc became the ultimate holding company of the Group under a group reorganisation in 2006. The pooling of
interests method of accounting was applied to the Group reorganisation as it fell outside the scope of IFRS 3: Business
Combinations. The Directors adopted the pooling of interests as they believed it best reflected the true nature of the Group.
All other business combinations have been accounted for by the purchase method of accounting.
Under the purchase method of accounting, the identifiable assets, liabilities and contingent liabilities of a subsidiary are
measured initially at their fair values at the date of acquisition, irrespective of the extent of any minority interest. The results of
subsidiaries acquired or disposed of during the year are included in the Consolidated Income Statement from the effective date
of acquisition or up to the effective date of disposal, as appropriate. Acquisition related costs are expensed as incurred.
Where necessary, adjustments are made to the financial information of subsidiaries to bring the accounting policies used into
line with those adopted by the Group.
All inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated
on consolidation. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the
asset transferred.
3. Summary of significant accounting policies
Total Revenue
Revenue
Revenue comprises the fair value of the consideration received from the provision of online financial services in the ordinary
course of the Group’s activities, net of client rebates. Revenue is shown net of value added tax after eliminating sales within the
Group. Revenue is recognised when it is probable that economic benefits associated with the transaction will flow to the Group
and the revenue can be reliably measured.
The Group generates revenue principally from flow management, commissions, spreads and financing income associated with
acting as a market maker to its clients to trade contracts for difference (CFD) and financial spread betting.
121
Revenue represents profits and losses, including commissions, spreads and financing income, from client trading activity and the
transactions undertaken to hedge these revenue flows. Gains and losses arising on the valuation of open positions to fair market
value are recognised in revenue, as well as the gains and losses realised on positions which have closed. Revenue from the
provision of financial information and stockbroking services to third parties is recognised at the later of the rendering of the
service or the point at which the revenue can be reliably measured.
Interest Income
Total revenue also includes interest earned on the Group’s own funds, clients’ funds and broker trading deposits net of interest
payable to clients and brokers. Interest income is accrued on a time basis, by reference to the principal outstanding and at the
interest rate applicable.
Rebates and levies
Rebates payable to introducing partners, and spread betting levies are charged to the income statement when the associated
revenue is recognised and is disclosed as a deduction from total revenue in deriving net operating income. Betting levy is
payable on net gains generated from clients on Spread betting and the Countdowns product (a subset of binaries). This levy is
payable on net gains generated from clients on these products.
Other income
Items of income that are material by size and/or nature and are non-business related are classified as other income on the face
of the consolidated income statement.
Use of estimates
Segmental reporting
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a
higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements
are set out below:
Income taxes
The Group is subject to income taxes in numerous jurisdictions. Significant judgement is required in determining the worldwide
provision for income taxes. There are transactions and calculations for which the ultimate tax determination is uncertain during
the ordinary course of business. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether
additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were recorded,
such differences will impact the income tax and deferred tax provisions in the year in which such determination is made.
Deferred taxes
The carrying amounts of deferred tax assets are reviewed at each balance sheet date and reduced to the extent that it is no
longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Segment revenue
The group manages risk and hedges on a group-wide portfolio basis; as such the allocation of revenue to a segment involves the
use of an allocation methodology. This methodology does not impact on the overall Group net operating income.
The Group’s segmental information is disclosed in a manner consistent with the internal reporting provided to the chief
operating decision-maker. The chief operating decision-maker (CODM), who is responsible for allocating resources and assessing
the performance of the operating segments, has been identified as the CMC Markets plc Board. Operating segments that do not
meet the quantitative thresholds required by IFRS 8 are aggregated. The segments are subject to annual review and the
comparatives restated to reflect any reclassifications within the segmental reporting.
Share-based payment
The Group issues equity-settled and cash-settled share-based payments to certain employees.
Equity-settled share-based payments are measured at fair value (excluding the effect of non-market-based vesting conditions) at
date of grant. The fair value determined at the grant date of the equity-settled share-based payment is expensed on a straight-
line basis over the vesting period, based on the Group’s estimate of shares that will eventually vest. At each balance sheet date,
the Group revises its estimate of the number of equity instruments expected to vest as a result of the effect of non-market-
based vesting conditions. The impact of the revision of the original estimates, if any, is recognised in the income statement such
that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the retained earnings.
The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-
transferability, exercise restrictions and behavioural considerations.
Cash-settled share based payments are measured at expected value at vesting date at least once per year, along with the
likelihood of meeting non-market based vesting conditions and the number of shares that are expected to vest. The cost is
recognised in the income statement with a corresponding accrual.
CMC Markets plcAnnual Report 2016Financial statementsFinancial statements Retirement benefit costs
Foreign currencies
A defined contribution plan is a post-employment benefit plan into which the Group pays fixed contributions to a third party
pension provider and has no legal or constructive obligation to pay further amounts. Contributions are recognised as staff
expenses in profit or loss in the years during which related employee services are fulfilled.
The Group operates defined contribution pension schemes for its Directors and employees. The assets of the schemes are held
separately from those of the Group in independently administered funds.
Transactions denominated in currencies, other than the functional currency, are recorded at the rates of exchange prevailing
on the date of the transaction. At each balance sheet date, monetary assets and liabilities that are denominated in foreign
currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary assets and liabilities carried at fair
value that are denominated in foreign currencies, are translated at the rates prevailing at the date when the fair value was
determined. Gains and losses arising on retranslation are included in the income statement for the year, except for exchange
differences arising on non-monetary assets and liabilities where the changes in fair value are recognised directly in equity.
122
Operating Leases
Leases in which substantially all the risks and rewards of ownership are retained by the lessor are classified as operating leases.
The rentals payable under operating leases are charged to the income statement on a straight-line basis over the lease term.
Benefits received and receivable as an incentive to enter into an operating lease are included within deferred income and
amortised to the income statement so as to spread the benefit on a straight-line basis over the lease term.
Where a leasehold property becomes surplus to the Group’s foreseeable business requirements, provision is made for the
expected future net cost of the property taking account of the duration of the lease and any recovery of cost achievable
through subletting.
Exceptional items
Exceptional items are events or transactions that fall within the ordinary activities of the Group and which by virtue of their size
or incidence have been disclosed in order to improve a reader’s understanding of the financial statements.
Taxation
The tax expense represents the sum of tax currently payable and movements in deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit before tax as reported in the
Consolidated Income Statement because it excludes items of income or expense that are taxable or deductible in other years
and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates
and laws that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising from
differences between the carrying amount of assets and liabilities in the financial information and the corresponding tax basis
used in the computation of taxable profit. In principle, deferred tax liabilities are recognised for all temporary differences and
deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible
temporary differences may be utilised. Deferred tax is calculated using tax rates and laws enacted or substantively enacted by
the balance sheet date.
Such assets and liabilities are not recognised if the temporary difference arises from the goodwill or from the initial recognition
(other than in a business combination) of other assets and liabilities in a transaction, which affects neither the tax profit nor the
accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, except where the
Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse
in the foreseeable future.
The carrying amounts of deferred tax assets are reviewed at each balance sheet date and reduced to the extent that it is no
longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the rates that are expected to apply when the asset or liability is settled. Deferred tax is charged or
credited in the Consolidated Income Statement, except when it relates to items credited or charged directly to equity, in which
case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when they relate to income taxes
levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.
On consolidation, the assets and liabilities of the Group’s overseas operations are translated at exchange rates prevailing on the
balance sheet date. Income and expense items are translated at the average exchange rates applicable to the relevant year.
Exchange differences arising, if any, are classified as equity and transferred to the Group’s translation reserve.
123
Such translation differences are recognised as income or expense in the year in which the operation is disposed of.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the
foreign entity and translated at the closing rate.
Intangible assets
Goodwill
Goodwill represents the excess of the cost of acquisition over the fair value of the Group’s interest in the identifiable assets,
liabilities and contingent liabilities of a subsidiary, at the date of acquisition. Goodwill arising on the acquisition of subsidiaries
is included within ‘intangible assets’ at cost less accumulated impairment losses.
Goodwill is tested for impairment annually. Any impairment is recognised immediately in the Consolidated Income Statement
and is not subsequently reversed. On disposal of a subsidiary, the attributed amount of goodwill, which has not been subject
to impairment, is included in the determination of the profit or loss on disposal.
Goodwill is allocated to cash-generating units for purposes of impairment testing. The allocation is made to those cash-
generating units or groups of cash generating units that are expected to benefit from the business combination, identified
according to business segment.
Computer software (purchased and developed)
Purchased software is recognised as an intangible asset at cost when acquired. Costs associated with maintaining computer
software and costs directly attributable to internally developed software are recognised as an expense as incurred.
Costs which have been recognised as an asset are amortised on a straight line basis over their estimated useful lives.
Trademarks and trading licences
Trademarks and trading licences that are separately acquired are capitalised at cost and those acquired from a business
combination are capitalised at the fair value at the date of acquisition. Amortisation is charged to the income statement on
a straight line basis over their estimated useful lives.
CMC Markets plcAnnual Report 2016Financial statementsFinancial statements Client relationships
Financial assets
The fair value attributable to client relationships acquired through a business combination is included as an intangible asset and
amortised over the estimated useful life on a straight line basis. The fair value of client relations is calculated at the date of
acquisition on the basis of the expected future cash flows to be generated from that asset. Separate values are not attributed
to internally generated client relationships.
Regular purchases and sales of financial assets are recognised on a trade date basis where the purchase or sale of an asset is
under a contract whose terms require delivery of the asset within the timeframe established by the market concerned. Financial
assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and
the Group has transferred substantially all risks and rewards of ownership.
Following initial recognition, Computer software, Trademarks and trading licences and Client relationships are carried at cost or
initial fair value less accumulated amortisation. Amortisation is provided on all intangible asset at rates calculated to write-off the
cost, less estimated residual value based on prices prevailing at the balance sheet date, of each asset on a straight-line basis over
its expected useful life as follows:
124
Item
Amortisation Policy
Computer software (purchased or developed)
3 years or life of licence
Trademarks and trading licences
Client relationships
10 – 20 years
14 years
Useful lives are also examined on an annual basis and adjustments, where applicable, are made on a prospective basis.
Property, plant and equipment
Property, plant and equipment (PPE) is stated at cost less accumulated depreciation and any recognised impairment loss. Cost
includes the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its
intended use. Depreciation is provided on all PPE at rates calculated to write-off the cost, less estimated residual value based on
prices prevailing at the balance sheet date, of each asset on a straight-line basis over its expected useful life as follows:
Item
Depreciation Policy
Furniture, fixtures and equipment
Computer hardware
Leasehold Improvements
5 years
5 years
15 years
The useful lives and residual values of the assets are assessed annually and may be adjusted depending on a number of factors.
In reassessing asset lives, factors such as technological innovation, product life cycles and maintenance programmes are taken
into account. Residual value assessments consider issues such as future market conditions, the remaining life of the asset and
projected disposal values. Consideration is also given to the extent of current profits and losses on the disposal of similar assets.
The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and
the carrying amount of the asset and is recognised in the Consolidated Income statement.
Impairment of assets
Assets subject to amortisation or depreciation are reviewed for impairment if events or changes in circumstances indicate that
the carrying amount of the asset may not be recoverable. If any such indication exists, the recoverable amount of the asset is
estimated in order to determine the extent of the impairment loss (if any).
The recoverable amount is the higher of fair value less cost to sell and value-in-use. Net realisable value is the estimated amount
at which an asset can be disposed of, less any direct selling costs. Value-in-use is the estimated discounted future cash flows
generated from the asset’s continued use, including those from its ultimate disposal. For the purpose of assessing value in use,
assets are grouped at the lowest levels for which there are separately identifiable cash flows.
To the extent that the carrying amount exceeds the recoverable amount, the asset is written down to its recoverable amount.
For assets other than goodwill, where an impairment loss subsequently reverses, the carrying amount of the asset is increased
to the lower of its original carrying amount and the revised estimate of its recoverable amount.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active
market. They are included in current assets, except for maturities greater than 12 months after the end of the reporting year.
These are classified as non-current assets. Loans and receivables are recognised initially at cost, being the fair value of the
consideration together with any associated issue costs. After initial recognition, loans and receivables are subsequently
measured at amortised cost using the effective interest method, less provision for impairment.
125
The Group’s loans and receivables comprise ‘trade and other receivables’ (note 18), ‘amounts due from brokers’ and ‘cash and
cash equivalents’ (note 20) in the statement of financial position.
Derivative financial instruments
Derivatives financial instruments, comprising Index, Commodities, Foreign Exchange and Treasury futures and forward foreign
exchange contracts are classified as ‘fair value through profit or loss’ under IAS39, unless designated as hedges. Derivatives not
designated as hedges are initially recognised at fair value. Subsequent to initial recognition, changes in fair value of such
derivatives and gains or losses on their settlement are recognised in the income statement.
The Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as
well as its risk management objectives and strategy for undertaking various hedging transactions. The Group also documents its
assessment, both at hedge inception and on an on-going basis, of whether the derivatives that are used in hedging transactions
are highly effective in offsetting changes in fair values or cash flows of hedged items.
The Group designates certain derivatives as either:
Held for trading
Derivatives classified as held for trading are included in this category and relate to the financial derivative open positions. The
Group uses derivative financial instruments in order to hedge derivative exposures arising from open client positions, which are
classified as held for trading. All derivatives held for trading are carried in the statement of financial position at fair value with
gains or losses recognised in revenue in the income statement.
Held as Hedges of net investments in foreign operations
Where a foreign currency derivative financial instrument is a formally designated hedge of a net investment in a foreign
operation, foreign exchange differences arising on translation of the financial instrument are recognised in Net investment
hedging reserve via other comprehensive income to the extent the hedge is effective. The Group assesses the effectiveness
of its net investment hedges based on fair value changes of its net assets and the fair value changes of the relevant financial
instrument. The gain or loss relating to the ineffective portion is recognised immediately in operating costs in the income
statement. Accumulated gains and losses recorded in Net investment hedging reserve are recognised in operating costs in the
income statement on disposal of the foreign operation.
Economic hedges (held as Hedges of monetary assets and liabilities, financial commitments or forecast transactions)
These are derivatives held to mitigate the foreign exchange risk on monetary assets and liabilities, financial commitments or
forecast transactions. Where a derivative financial instrument is used as an economic hedge of the foreign exchange exposure
of a recognised monetary asset or liability, financial commitment or forecast transaction, but does not meet the criteria to qualify
for hedge accounting under IAS39, no hedge accounting is applied and any gain or loss resulting from changes in fair value of
the hedging instrument is recognised in operating costs in the income statement.
CMC Markets plcAnnual Report 2016Financial statementsFinancial statements Trade receivables
Provisions
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest
method, less provision for impairment.
A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to
collect all amounts due according to the original terms of the receivables. For trade receivables relating to financial information
and stockbroking services, significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or
financial reorganisation, and default or delinquency in payments are considered indicators that the trade receivable is impaired.
The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future
cash flows, discounted at the original effective interest rate.
126
A provision is a liability of uncertain timing or amount that is recognised when the Group has a present obligation (legal or
constructive) as a result of a past event where it is probable that the Group will be required to settle that obligation. Provisions
are measured at the Directors’ best estimate of the expenditure required to settle the obligation at the balance sheet date and
are discounted to present value where the effect is material. The increase in the provision due to the unwind of the discount to
present value over time is recognised as an interest expense.
Share capital
Ordinary and deferred shares are classified as equity. Incremental costs directly attributable to the issue of new shares or
options are shown in equity as a deduction, net of tax, from the proceeds.
127
The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised
in the income statement within other operating costs. When a trade receivable is uncollectible, it is written off against the
allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against other
operating costs in the income statement.
Amounts due from brokers
All derivatives used as hedges held for trading are margin-traded. Amounts due from brokers represent funds placed with
hedging counterparties, a proportion of which is posted to meet broker margin requirements. Assets or liabilities resulting from
profits or losses on open positions are recognised separately as derivative financial instruments.
Cash and cash equivalents
Cash and cash equivalents comprise current account balances, bank deposits and other short-term highly liquid investments
with initial maturity dates of less than three months.
Client money
The Group holds money on behalf of clients in accordance with the Client Asset (CASS) rules of the Financial Conduct Authority
and other financial markets regulators in the countries in which the Group operates. Client monies are classified as either client
money or cash and cash equivalents in accordance with the relevant regulatory agency’s requirements. The amounts held on
behalf of clients at the balance sheet date are stated in notes 20 and 21. Segregated client funds comprise individual client
funds held in segregated client money accounts. Segregated client money accounts hold statutory trust status restricting the
Group’s ability to control the monies and accordingly such amounts and are not recognised on the Group’s statement of
financial position.
Trade payables
Trade payables are not interest-bearing and are stated at fair value on initial recognition and subsequently at amortised cost.
Borrowings
The Group leases certain property, plant and equipment. The leases where the Group has substantially all the risks and rewards
of ownership are classified as finance leases. These leases are capitalised at the lease’s commencement at the lower of fair value
and present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges.
The corresponding rental obligations, net of finance charges, are included in Borrowings. The interest element is charged to the
income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of liability
for each period and is presented within finance costs. The property, plant and equipment acquired under finance leases are
depreciated over the shorter of the useful life of the asset and the lease term.
All loans and borrowings other than finance leases are initially recognised at cost, being the fair value of the consideration
received, net of issue costs associated with the borrowing. After initial recognition, interest-bearing loans and borrowings are
subsequently measured at amortised cost using the effective interest rate method. Amortised cost is calculated by taking into
account any issue costs, and any discount or premium on settlement. Gains and losses are recognised in the income statement
when the liabilities are derecognised or impaired, as well as through the amortisation process.
Own shares held in trusts
Shares held in trust by the Company for the purposes of employee share schemes are classified as a deduction from
shareholders’ equity and are recognised at cost. No gain or loss is recognised in the income statement on the purchase, sale,
issue or cancellation of equity shares.
Employee benefit trusts
Assets held in employee benefit trusts are recognised as assets of the Group, until these vest unconditionally to identified
employees. A full provision is made in respect of assets held by the trust as there is an obligation to distribute these assets
to the beneficiaries of the employee benefit trust.
The employee benefit trusts own equity shares in the Company. These investments in the Company’s own shares (‘treasury
shares’) are held at cost and are included as a deduction from equity attributable to the Company’s equity owners until such
time as the shares are cancelled or transferred. Where such shares are subsequently transferred, any consideration received,
net of any directly attributable incremental transaction costs and the related income tax effects are included in equity
attributable to the Company’s equity owners.
4. Financial risk management
The Group’s day-to-day business activities naturally expose it to strategic, financial (including credit and market) and operational
risks. The Board accepts that it cannot place a cap or limit on all of the risks to which the Group is exposed. However, effective
risk management ensures that risks are managed to an acceptable level. The Board is ultimately responsible for the
implementation of an appropriate risk strategy, defining and communicating the Group’s risk appetite, the establishment and
maintenance of effective systems and controls, and continued monitoring of the adherence to Group policies. The Group has
adopted a standard risk process, through a five step approach to risk management: Risk Identification; Risk Assessment; Risk
Management; Risk Reporting and Risk Monitoring. The approach to managing risk within the business is governed by the Board
approved Risk Appetite Statement and Risk Management Framework.
The Board sets the strategy and the policies for managing these risks and delegates the monitoring and management of these
risks to various committees including Group Risk Committee and Risk Management Committee.
The Group’s Internal Capital Adequacy Assessment Process (ICAAP) is prepared under the requirements set out in the Prudential
Regulation Authority (PRA) Rulebook in accordance with CRD IV1. A key purpose of an ICAAP is to inform a firm’s board of the
ongoing assessment of the firm’s risks, how the firm intends to mitigate those risks, and how much current and future capital is
necessary, having considered potential stresses as well as mitigating factors.
Financial risks arising from financial instruments are categorised into market, credit and liquidity risks which, together with how
the Group categorises and manages these risks, are described below.
Market risk
Market risk is defined as the risk that the value of our residual portfolio will decrease due to the change in market risk factors.
The three standard market risk factors are price moves, interest rates and foreign exchange rates.
Market price risk
This is the risk that the fair value of a financial instrument will fluctuate due to changes in market prices other than due to
currency or interest rate risk.
1 The Capital Requirements Directive (2013/36/EU) (CRD) and the Capital Requirements Regulation (575/2013) (CRR), called ‘CRD IV’.
CMC Markets plcAnnual Report 2016Financial statementsFinancial statements Mitigation of market risk
The Group benefits from a number of factors which also reduce the volatility of its revenue and protect it from market shocks
as follows:
Overall client exposures can vary significantly over a short period of time and are highly dependent on underlying market
conditions. Under the residual risk flow model the Group’s OFR has fallen against the prior years and remains well within the
Board-approved risk appetite.
• Natural mitigation of concentration
The Group acts as a market maker in over 10,000 cross asset instruments, specifically equities, equity indices, commodities,
treasuries and foreign exchange as well as forwards on commodities, treasuries equity indices and FX. Because of the high level
of notional turnover there is a high level of internal crossing and natural hedging across instruments and asset classes to mitigate
significant single instrument concentration risk within the portfolio.
128
• Natural aggregation
In the year ended 31 March 2016, the Group traded with over 57,000 clients. This large international client base has a diverse
range of trading strategies resulting in the Group enjoying a high degree of natural hedging between clients. This ‘portfolio
effect’ leads to a significant reduction in the Group’s net market risk exposure.
• Ease of hedging
The Group predominantly acts as a market maker in linear, highly liquid financial instruments in which it can easily neutralise
market risk exposure through its prime broker (PB) arrangements. In order to avoid over-reliance on one arrangement the Group
has seven PB relationships. For instruments where there is no equivalent underlying market (e.g. Countdowns) the Group
controls its risk through setting low position/exposure limits. This is further augmented by dealer monitoring and intervention,
which can take the form of restricting the size offered or, if deemed necessary, restricting the clients’ ability to take a position in
an instrument.
Market risk limits
Market risk positions are managed in accordance with the Group’s Risk Appetite Statement and Group Risk Management
Framework to ensure that the Group has sufficient capital resources to support the calculated Market Risk Capital Requirement
as well as staying within the Risk Appetite. The Group manages this crucial component under notional position limits that are set
on an instrument as well as asset class level with overarching capital based limits.
GROUP OFR
£‘000
Asset class
Consolidated equities
Commodities
Treasuries
Foreign exchange
Interest rate risk
Countdowns
31 March
31 March
2016
2015
129
4,838
1,838
590
1,862
585
1
9,714
5,707
2,692
1,656
2,464
403
–
12,922
Market price risk – stress testing
Group Financial Risk conducts market price risk stress testing on a daily basis. The approach to this stress testing is tailored to
the asset class and the client behaviours seen, for example longer holding periods on Equities versus shorter on the Foreign
Exchange asset class. This then leads to the most suitable stress testing models to be used, be it based on intraday movements
or end of day positions and severe market movements based on historic volatility or CVar/ETL. It should be noted that the
Group not only runs likely and probable scenarios but also extreme case stress scenarios, again on a daily basis, where the stress
factors simulate almost black swan type events to ensure we maintain capital adequacy even under very unlikely events.
None of the stress tests run through the year implied any significant risk to the capital adequacy nor ongoing profitability of the
Group.
Non trading book interest-rate risk
Interest rate risk arises from either less interest being earned or more being paid on interest bearing assets and liabilities due
to a change in the relevant floating rate.
Interest rate risk is felt by the Group through a limited number of channels, income on segregated client and own funds and
debits on client balances that are over a pre-defined threshold.
The sensitivity analysis performed is based on a reasonable and possible move in the floating rate by 0.5% upwards and 0.25%
downwards. This is in line with the movement used for the year ended 31 March 2015.
This is summarised in the below table, and reflects the Group’s view that in the current economic environment, interest rate
volatility is unlikely to have a significant impact on the profits of the Group.
GROUP
31 March 2016
£‘000
Impact of
Profit after tax
Equity
GROUP
31 March 2015
£‘000
Impact of
Profit after tax
Equity
Absolute
increase
Absolute
decrease
0.50% change
0.25% change
731
731
(512)
(512)
Absolute
increase
Absolute
decrease
0.50% change
0.25% change
697
697
(278)
(278)
Non trading book foreign exchange risk
Foreign exchange risk is the risk that the Group’s results are impacted by movements in foreign exchange rates.
CMC Markets plcAnnual Report 2016Financial statementsFinancial statements CMC feels foreign exchange risk in the form of transaction and translation exposure.
Transaction exposure is from holdings of cash and other current assets and liabilities in a currency other than the base currency
of the entity. This risk is hedged each month by the Liquidity Risk Management team according to a policy based on a cap and
floor model, with gains/losses recognised in the income statement. Any foreign exchange exposures are hedged in accordance
with Group Foreign Exchange Hedging Policy. Given the effectiveness of the hedging program (income statement impact in year
ended 31 March 2016: £267,000 loss, Year ended 31 March 2015: £374,000 gain), no sensitivity analysis has been performed.
These ‘fair value hedges’ are derivative financial instruments and are reported as described in note 3.
130
Translation exposure occurs when the net assets of an entity are denominated in a foreign currency other than GBP, when the
consolidated statement of financial position is prepared. The Group hedges this exposure by using FX forwards. These ‘Net
Investment Hedges’ are derivative financial instruments and are reported as described in note 3. The unhedged portion does not
pose a significant risk to the capital adequacy or to the ongoing profitability of the Group.
Credit risk
Credit risk is the risk that the counterparty to a transaction will cause the Group financial loss by failing to fulfill a contractual
obligation. Below are the channels of credit risk the Group is exposed through:
• Credit institution (CI);
• Client.
Credit Institution credit risk
The Group has relationships with a number of counterparties that provide prime brokerage and/or banking services (e.g. cash
accounts, foreign exchange trading, credit facilities etc.). All these market counterparties can be described as Credit Institutions
(CIs) as defined by Article 4 ‘Definitions’ in the CRR (‘credit institution’ is defined as an undertaking the business of which is to
take deposits or other repayable funds from the public and to grant credits for its own account).
Credit Institution credit risk can therefore be defined as the risk that a CI will default on their contractual obligation to the
Group resulting in a loss to the Group.
The above could be felt in two ways:
• For CIs used as a bank and those as a broker, the Group does not receive the funds the CI holds back;
• For the CIs used as broker, the default causes the need to re-hedge at a different broker at a different price.
Mitigation of Credit Institution credit risk
To mitigate or avoid a credit loss1:
• The Group maintains, where practical, a range of relationships to reduce over-reliance on a single CI – as detailed in the
Group Counterparty Concentration Risk Policy.
• The Group monitors the credit worthiness of the credit institution and reviews counterparties at least annually – as detailed
in the Group Hedge Counterparty Selection Policy.
Liquidity Risk Management monitor the credit quality of all its CIs, by tracking the credit ratings issued by Moody’s, Standard &
Poor’s and Fitch rating agencies and the CDS (Credit Default Swap) spreads determined in the CDS market. Ratings, rating
outlooks and CDS spreads are reported to senior management on a weekly basis with any changes highlighted.
1 Contractual losses can be reduced by the ‘close-out netting’ conditions in the ISDA and broker agreements. If a specified event of default occurs, all transactions or all
of a given type are terminated and netted (i.e. set off against each other) at market value or, if otherwise specified in the contract or if it is not possible to obtain a market
value, at an amount equal to the loss suffered by the non-defaulting party in replacing the relevant contract.
No quantitative credit rating limits are set by the Group that CIs must exceed because the choice of suitable CIs is finite and
therefore setting minimum rating limits could lead to the possibility that no CIs are able to meet them. As an alternative, the
Group reviews negative rating action and large CDS spread widening to CIs on a case by case basis. However, all CIs are of
investment grade quality and that negative rating action on CIs rated below A3/A-/A- (by Moody’s, S&P and Fitch respectively)
would be escalated directly to the Chief Financial Officer & Head of Risk in the first instance to decide if any management actions
were required. Possible actions by the Firm to reduce exposure to CIs depend on the nature of the relationship and the practical
availability of substitute CIs. Possible actions include the withdrawal of cash balances from a CI on a daily basis, switching a
proportion of hedge trading to another prime broker CI or ceasing all commercial activity with the CI.
The tables below present CMC Markets’ exposure to credit institutions based on their long-term credit rating.
131
GROUP
31 March 2016
£‘000
AA+ to AA-
A+ to A-
BBB+ to BBB-
Unrated
GROUP
31 March 2015
£‘000
AA+ to AA-
A+ to A-
BBB+ to BBB-
Unrated
Cash and cash
Amounts due
financial
equivalents
from brokers
instruments
Net Derivative
20,804
5,748
51,727
1
78,280
–
12,578
71,652
–
84,230
–
139
(4,340)
–
(4,201)
Cash and cash
Amounts due
financial
equivalents
from brokers
instruments
Net Derivative
19,216
11,300
7,067
1,028
38,611
–
73,694
36,100
–
109,794
–
–
2,470
–
2,470
Total
20,804
18,465
119,039
1
158,309
Total
19,216
84,994
45,637
1,028
150,875
No cash balances or deposits with institutions were considered past due but not impaired or impaired (Year ended 31 March
2015: £nil).
Client credit risk
The Group operates a real-time mark-to-market leveraged trading facility where clients are required to lodge collateral against
positions, any profits and losses generated by the client are credited and debited automatically to their account. As with any
leveraged product offering, there is the potential for a client to lose more than the collateral lodged.
Client counterparty risk captures the risk associated with a client defaulting on their obligations due to the Group. As the Group
does not offer most of its retail clients credit terms and has a robust liquidation process, client counterparty credit risk will in
general only arise when markets and instruments gap and the movement in the value of a clients leveraged portfolio exceeds the
value of equity that the client has held at the Group leaving the client account in deficit.
Mitigation of client credit risk
• Liquidation process
This is the process of closing a client’s open position if the total equity is not enough to cover a predefined percentage
of required margin for the portfolio held.
The Group has a fully automated liquidation process on the Next Generation platform and the semi-automated liquidation order
management process on Marketmaker. These processes ensure a consistent and timely approach to the processing of liquidation
orders and ultimately aims to minimise client credit risk exposure through protecting the client from becoming a debtor.
Pre-emptive processes are also in place where a clients’ free equity (total equity less total margin requirement) becomes
negative. At this point the client is requested to deposit additional funds and is restricted from increasing their position.
CMC Markets plcAnnual Report 2016Financial statementsFinancial statements • Tiered margin
Debt ageing analysis
Tiered margin was implemented in September 2013 on the Next Generation platform. It enables the Group to set higher margin
rates (therefore requiring a client to lodge more collateral) against positions that are deemed to be more risky due to risk profile,
which could be due to size relative to the underlying’s turnover, the Group’s risk appetite or volatility of the instrument.
The Group works efficiently to minimise the effects of client debts on the Company’s profit and loss. Client debts are managed
very early in their life cycle in order to minimise the likelihood of them becoming doubtful debts or of being written off. There are no
debts past due which have not been impaired. The following table sets out ageing of debts that are past due and the provisions
charged against them:
• Position limits
132
Position limits can be implemented on an instrument and client level on the Next Generation platform. The instrument level
enables the Group to control the total exposure the Group acquires in a single instrument. At a client level this ensures that the
client can only reach a pre-defined size in any one instrument.
Client Credit Risk Stress Testing
The Group uses the same volatility stress factors as for price risk to stress the client portfolio and assesses the client’s total
equity post adverse price movement.
None of the stress tests run through the year implied any significant risk to the capital adequacy or to the ongoing profitability
of the Group.
Client debt history
For the year ended 31 March 2016, new debt arising was £5,240,000 (Year ended 31 March 2015: £6,597,000). This
constituted 2.8% of total revenue (Year ended 31 March 2015: 4.0%).
The Group establishes specific provisions against debts due from clients where the Group determines that it is probable that it
will be unable to collect all amounts owed in accordance with contractual terms of the clients agreement. Net debt provided for
in the year ended 31 March 2016 amounted to £2,384,000 (Year ended 31 March 2015: £4,335,000), the provision
representing 1.3% of total revenue (Year ended 31 March 2015: 2.6%). Bad debt written off during the year ended 31 March
2016 was £4,279,000 or 2.3% of revenue (Year ended 31 March 2015: £401,000; 0.2% of revenue).
The table below details the movement on the Group provision for impairment of trade receivables:
GROUP
£‘000
Opening provision
Net debt provided
Debt written off
Closing provision
31 March
31 March
2016
5,885
2,384
(4,279)
3,990
2015
1,951
4,335
(401)
5,885
The Debt provided during the year ended 31 March 2015 also includes an amount of £3,850,000 of exceptional bad
debt provisions.
GROUP
31 March 2016
£‘000
Less than one month
One to three months
Three to 12 months
Over 12 months
GROUP
31 March 2015
£‘000
Less than one month
One to three months
Three to 12 months
Over 12 months
Liquidity risk
Debt
14
288
1,654
2,510
4,466
Debt
117
4,223
391
1,872
6,603
Provision
133
1
150
1,642
2,197
3,990
Provision
25
3,601
387
1,872
5,885
Liquidity risk is the risk that there is insufficient available liquidity to meet the liabilities of the Group as they fall due.
Liquidity is managed centrally for the Group by the Liquidity Risk Management team. Utilising a combination of liquidity
forecasting and stress testing (formally documented in the Individual Liquidity Adequacy Assessment (‘ILAA’)) to ensure that the
Group retains access to sufficient liquidity resources in both normal and stressed conditions to meets its liabilities as they fall
due. Liquidity forecasting fully incorporates the impact of liquidity regulations in force in each jurisdiction and other impediments
to the free movement of liquidity around the Group, including its own policies on minimum liquidity to be retained by trading
entities.
Stress testing is undertaken on a quarterly basis upon a range of individual and combined, firm specific and market wide, short
and medium term scenarios that represent plausible but severe stress events to ensure the Group has appropriate sources of
liquidity in place to meet such events.
Due to the risk management strategy adopted and the changeable scale of the client trading book, the largest and most variable
consumer of liquidity is broker counterparty margin requirements. The collateral calls are met in cash from own funds but to ensure
liquidity is available for extreme spikes the Group has arranged a committed bank facility of £40.0 million to meet short term
liquidity obligations to broker counterparties in the event that it does not have sufficient access to own cash or funds from clients
and to leave a sufficient liquidity buffer to cope with a stress event.
The Group does not engage in maturity transformation as part of its underlying business and therefore maturity mismatch
of assets and liabilities does not represent a liquidity risk to the Group.
CMC Markets plcAnnual Report 2016Financial statementsFinancial statements Own Funds
Own funds is a key measure the Group uses to monitor the overall level of liquidity available to the Group. Own funds includes
investments in the UK government bonds which are held to meet the Group’s liquid asset buffer (LAB – as agreed with FCA). These
UK government bonds are BIPRU 12.7 eligible to meet liabilities which fall due in periods of stress. The derivation of own funds is
shown in the table below:
134
GROUP
£‘000
Cash and cash equivalents
Amount due from brokers
Financial investments
Derivative financial instruments (Current Assets)
Less: Title transfer funds
Less: Derivative financial instruments (Current Liabilities)
Own Funds
31 March
31 March
2016
78,280
84,230
20,374
795
183,679
(2,245)
(4,996)
176,438
2015
38,611
109,794
–
3,275
151,680
(7,803)
(805)
143,072
The following Own Funds Flow Statement summarises the Group’s generation of own funds during each year and excludes
all cash flows in relation to monies held on behalf of clients. Additionally, short term financial investments, amounts due from
brokers and amounts receivable / (payable) on the derivative financial instruments have been included within ‘own funds’
in order to provide a clear presentation of the Group’s potential cash resources.
GROUP
£‘000
Operating activities
Profit before tax
Adjustments for:
Finance costs
Depreciation and amortisation
Other non-cash adjustments
Tax paid
Own funds generated from operating activities
Movement in working capital
Inflow / (Outflow) from investing activities
Net Purchase of property, plant and equipment and intangible assets
Proceeds from issuance of ordinary shares
(Outflow) / Inflow from financing activities
Interest paid
Dividends paid
Other (Outflow) / Inflow from financing activities
Total Outflow from investing and financing activities
Increase in own funds
Own funds at the beginning of the year
Effect of foreign exchange rate changes
Own funds at the end of the year
31 March
31 March
2016
2015
53,376
43,510
772
6,057
209
(6,872)
53,542
(5,240)
(3,933)
14,787
(772)
(24,935)
(413)
(15,266)
33,036
143,072
330
896
6,934
374
(6,471)
45,243
4,057
(10,314)
–
(896)
(11,950)
2,878
(20,282)
29,018
114,971
(917)
176,438
143,072
Maturity analysis
GROUP
31 March 2016
£‘000
Financial assets
Cash and cash equivalents
Financial investments
Amounts due from brokers
Derivative financial instruments
Trade and other receivables
Financial liabilities
Trade and other payables
Derivative financial instruments
Borrowings
Finance lease liabilities
Net liquidity gap
GROUP
31 March 2015
£‘000
Financial assets
Cash and cash equivalents
Amounts due from brokers
Derivative financial instruments
Trade and other receivables
Financial liabilities
Trade and other payables
Derivative financial instruments
Borrowings
Finance lease liabilities
Net liquidity gap
Less than
Three
three
months to
After
On demand
months
one year
one year
Total
135
75,577
–
84,230
–
12,124
171,931
(33,127)
–
–
–
(33,127)
138,804
–
–
–
795
208
2,703
20,044
–
–
625
1,003
23,372
–
(4,996)
(5)
(353)
(5,354)
(4,351)
–
–
(17)
(1,088)
(1,105)
22,267
–
–
–
–
277
277
–
–
(55)
(1,079)
(1,134)
(857)
78,280
20,044
84,230
795
13,234
196,583
(33,127)
(4,996)
(77)
(2,520)
(40,720)
155,863
Less than
Three
three
months to
After
On demand
months
one year
one year
Total
38,611
109,794
–
15,134
163,539
(37,415)
–
–
–
(37,415)
126,124
–
–
3,275
–
3,275
–
(805)
(5)
(392)
(1,202)
2,073
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(17)
(1,181)
(1,198)
(1,198)
(77)
(2,538)
(2,615)
(2,615)
38,611
109,794
3,275
15,134
166,814
(37,415)
(805)
(99)
(4,111)
(42,430)
124,384
Analysis of financial instruments by category
Financial assets and liabilities as determined by IAS 39, ‘Financial Instruments: Recognition and Measurement’, are
categorised as follows:
GROUP
31 March 2016
£‘000
Financial assets
Cash and cash equivalents
Financial investments
Amounts due from brokers
Derivative Financial instruments
Trade and other receivables
Assets at
FVOCI
Assets at
FVPL
Derivatives
held for
hedging
Financial
assets at
amortised cost
Total
–
20,374
–
–
–
20,374
–
–
–
795
–
795
–
–
–
–
–
–
78,280
–
84,230
–
13,234
175,744
78,280
20,374
84,230
795
13,234
196,913
CMC Markets plcAnnual Report 2016Financial statementsFinancial statements Financial liabilities
Trade and other payables excluding non-financial liabilities
Derivative Financial instruments
Borrowings
Finance lease liabilities
136
GROUP
31 March 2015
£‘000
Financial assets
Cash and cash equivalents
Amounts due from brokers
Derivative financial instruments
Trade and other receivables
Liabilities at
FVPL
Derivatives
held for
hedging
Loans and
receivables
–
(3,446)
–
–
–
(1,550)
–
–
(3,446)
(1,550)
(37,182)
–
(77)
(2,363)
(39,622)
Assets at
FVPL
Derivatives
held for
hedging
–
–
3,016
–
3,016
–
–
259
–
259
Loans and
receivables
38,611
109,794
–
15,134
163,539
Total
(37,182)
(4,996)
(77)
(2,363)
(44,618)
Total
38,611
109,794
3,275
15,134
166,814
GROUP
31 March 2015
£‘000
Derivative financial instruments (Current Assets)
Derivative financial instruments (Current Liabilities)
Level 1
Level 2
Level 3
–
–
–
3,275
(805)
2,470
–
–
–
Total
3,275
(805)
2,470
Capital management
The Group’s objectives for managing capital are as follows:
137
• to comply with the capital requirements set by the financial market regulators to which the Group is subject;
• to ensure that all Group entities are able to operate as going concerns and satisfy any minimum externally imposed capital
requirements; and
• to ensure that the Group maintains a strong capital base to support the development of its business.
The capital resources of the Group consists of equity being share capital reduced by own shares held in trust, share premium,
other reserves and retained earnings, which at 31 March 2016 totalled £176,327,000 (31 March 2015: £142,323,000).
The Group is supervised on a consolidated basis by the UK’s Financial Conduct Authority (FCA).
Liabilities at
held for
liabilities at
Derivatives
Financial
FVPL
hedging
amortised cost
Total
The Group’s Internal Capital Adequacy Assessment Process (ICAAP), prepared under the requirements of the FCA and the
Capital Requirements Directive, is an on-going assessment of CMC Markets’ risks and risk mitigation strategies, to ensure that
adequate capital is maintained against risks that the Group wishes to take to achieve its business objectives.
Financial liabilities
Trade and other payables excluding non-financial liabilities
Derivative Financial instruments
Borrowings
Finance lease liabilities
–
(775)
–
–
(775)
–
(30)
–
–
(30)
(41,790)
–
(99)
(3,753)
(45,642)
(41,790)
(805)
(99)
(3,753)
(46,447)
Fair value estimation
The Group’s assets and liabilities that are measured at fair value are derivative financial instruments. The table below categorises
those financial instruments measured at fair value based on the following fair value measurement hierarchy:
• Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities;
• Level 2 – inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly
(that is, as prices) or indirectly (that is, derived from prices); or
• Level 3 – inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs).
GROUP
31 March 2016
£‘000
Financial investments
Derivative financial instruments (Current Assets)
Derivative financial instruments (Current Liabilities)
Level 1
20,374
–
–
20,374
Level 2
Level 3
–
795
(4,996)
(4,201)
–
–
–
–
Total
20,374
795
(4,996)
16,173
The outcome of the ICAAP is presented as an Internal Capital Assessment (ICAAP) document covering the Group. It is reviewed
and approved by the Board on an annual basis.
Further information on the Group’s management of regulatory capital is provided in the ‘Pillar 3 Disclosure’ report, which is
available on the CMC Markets plc website (www.cmcmarkets.com/group). The Group’s country-by-country reporting disclosure
is also available in the same location on the website.
5. Segmental reporting
The Group’s principal business is online retail financial services and provides its clients with the ability to trade contracts for
difference (CFD) and financial spread betting on a range of underlying shares, indices, foreign currencies, commodities and
treasuries. The Group also makes these services available to institutional partners through white label and introducing broker
arrangements. The Group’s CFDs are traded worldwide; spread betting only in UK and Ireland and the Group provides
stockbroking services only in Australia. The Group’s core business is generally managed on a geographical basis and for
management purposes, the Group is organised into three segments:
• UK and Ireland (UK & IE);
• Europe;
• Australia, New Zealand and Singapore (APAC) and Canada.
Revenues and costs are allocated to the segments that originated the transaction. Costs generated centrally are allocated
to segments on an equitable basis, mainly based on revenue, headcount or active client levels.
CMC Markets plcAnnual Report 2016Financial statementsFinancial statements 138
GROUP
Year ended 31 March 2016
£‘000
Segment revenue net of rebates and levies
Interest income
Net operating income
Other income
Segment operating expenses
Segment EBITDA
Allocation of central operating expenses
Depreciation and amortisation
Allocation of central depreciation
and amortisation
Operating profit
Finance costs
Allocation of central finance costs
Profit before taxation
GROUP
Year ended 31 March 2015
£‘000
Segment revenue net of rebates and levies
Interest income
Net operating income
Other income
Segment operating expenses
Segment EBITDA
Allocation of central operating expenses
Depreciation and amortisation
Allocation of central depreciation
and amortisation
Operating profit
Finance costs
Allocation of central finance costs
Profit before taxation
UK & IE
63,153
286
63,439
3,135
(12,879)
53,695
(26,430)
(953)
(1,309)
25,003
(44)
(268)
24,691
UK & IE
48,699
359
49,058
–
(10,865)
38,193
(19,145)
(1,369)
(1,476)
16,203
–
(305)
15,898
Europe
48,483
–
48,483
–
(11,424)
37,059
(26,727)
(164)
(1,625)
8,543
–
(231)
8,312
Europe
45,090
–
45,090
–
(10,592)
34,498
(17,440)
(145)
(1,762)
15,151
(14)
(295)
14,842
APAC &
Canada
55,949
1,476
57,425
–
(10,117)
47,308
(24,700)
(297)
(1,709)
20,602
–
(229)
20,373
APAC &
Canada
47,745
1,759
49,504
–
(11,034)
38,470
(23,236)
(335)
(1,847)
13,052
–
(282)
12,770
Central
–
–
–
–
(77,857)
(77,857)
77,857
(4,643)
4,643
–
(728)
728
–
Central
–
–
–
–
(59,821)
(59,821)
59,821
(5,085)
5,085
–
(882)
882
–
Total
167,585
1,762
169,347
3,135
(112,277)
60,205
–
(6,057)
–
54,148
(772)
–
53,376
Total
141,534
2,118
143,652
–
(92,312)
51,340
–
(6,934)
–
44,406
(896)
–
43,510
The measurement of net operating income for segmental analysis is consistent with that in the income statement.
The Group uses ‘EBITDA’ to assess the financial performance of each segment. EBITDA comprises operating profit for the year
before interest expense, taxation, depreciation of property, plant and equipment and amortisation and impairment of intangibles.
6. Interest income
GROUP
£‘000
Bank and broker interest
Interest from clients
Interest on financial investments
Total
Year ended
Year ended
31 March
31 March
2016
1,587
151
24
1,762
2015
1,984
134
–
2,118
The Group earns interest income from its own corporate funds and from segregated client funds.
7. Other income
Exceptional income
As a result of their materiality the directors decided to disclose certain amounts separately in order to present results which are
not distorted by significant non-recurring events.
GROUP
£‘000
Litigation settlement
Total
Year ended
Year ended
31 March
31 March
2016
3,135
3,135
2015
–
–
139
In October 2015 the Group settled a dispute with a number of its former clients. The total settlement amount was £3,135,000
due to be paid to the Group over a two year period to 30 September 2017. This has been treated as exceptional income. As at
31 March 2016 £2,025,000 had been received.
8. Operating expenses
GROUP
£‘000
Net staff costs (note 9)
IT costs
Sales and marketing
Premises
Legal and Professional fees
Regulatory fees
Other
Total operating expenses before exceptional costs
Exceptional costs
Total operating expenses
Exceptional costs
Year ended
Year ended
31 March
31 March
2016
46,113
12,698
18,298
4,795
3,630
2,673
11,972
100,179
12,098
112,277
2015
40,722
11,398
13,652
5,594
2,925
2,078
7,509
83,878
8,434
92,312
As a result of their materiality the directors decided to disclose certain amounts separately in order to present results which are
not distorted by significant non-recurring events.
GROUP
£‘000
Litigation settlement and associated costs
Bad debt provisions and write offs
Listing costs
Share based payments (including social security) to directors and employees
Exceptional costs
Year ended
Year ended
31 March
31 March
2016
–
–
5,884
6,214
12,098
2015
4,584
3,850
–
–
8,434
During the year ended 31 March 2015 the Group received a claim against one of its subsidiaries relating to losses on a CFD
trading account over a period in 2007. A settlement was reached in March 2015. The settlement and associated costs amounted
to £4,584,000 during that year.
On 15 January 2015 the Swiss National Bank (SNB) made the unprecedented decision to discontinue its support of the Swiss
Franc/Euro peg. Following this decision the Swiss Franc appreciated by over 30 per cent in a matter of minutes. The Debt
provisions and write-offs during the year ended 31 March 2015 relating to this event amounted to £3,850,000.
CMC Markets plcAnnual Report 2016Financial statementsFinancial statements On 5 February 2016 the Company’s ordinary shares were listed on the London Stock Exchange. Total listing costs during the
year ended 31 March 2016 amounted to £6,418,000. A total of £534,000 of these costs have been recognised directly in
equity as they are costs that relate to the issue of new shares, £5,884,000 have been recognised as exceptional costs.
Share based payments including social security to directors and employees relates to the listing event triggered both the
settlement of existing share option schemes and the award of new shares to certain directors and employees amounting to
£6,214,000. The social security element amounts to £787,000.
9. Employee information
140
The aggregate employment costs of staff and Directors were:
GROUP
£‘000
Wages and salaries
Social security costs
Other pension costs
Share based payments
Total director and employee costs
Contract staff costs
Net staff costs
Year ended
Year ended
31 March
31 March
2016
36,855
5,291
1,145
1,059
44,350
1,763
46,113
2015
32,107
4,951
1,031
951
39,040
1,682
40,722
Compensation of key management personnel is disclosed in note 33.
The monthly average number of Directors and employees of the Group during the year is set out below:
GROUP
Number
By activity:
Key management
Client acquisition and maintenance
IT development and support
Global support functions
Total directors and employees
Contract staff
Total staff
10. Finance costs
GROUP
£‘000
Interest and fees on bank borrowings
Other finance costs
Year ended
Year ended
31 March
31 March
2016
2015
6
245
123
147
521
18
539
5
213
106
133
457
16
473
Year ended
Year ended
31 March
31 March
2016
583
189
772
2015
693
203
896
11. Profit before taxation
GROUP
£‘000
Profit before tax is stated after charging / (crediting):
Depreciation
Amortisation of intangible assets
Net foreign exchange loss / (gain)
Operating lease rentals
Auditors’ remuneration for audit and other services (see below)
Fees payable to the Company’s auditors, PricewaterhouseCoopers LLP were as follows:
GROUP
£‘000
Audit services
Statutory audit of Parent and consolidation
Statutory audit of subsidiaries
Other services
Tax compliance services
Other assurance services
Total
Year ended
Year ended
31 March
31 March
2016
2015
3,951
2,106
477
2,065
2,665
4,697
2,237
(608)
2,717
867
141
Year ended
Year ended
31 March
31 March
2016
2015
348
269
617
349
1,699
2,048
2,665
322
263
585
245
37
282
867
The Company incurred expenses of £1,699,000 during the year ended 31 March 2016 (Year ended 31 March 2015:£nil)
payable to the Company’s auditors relating to the Company’s listing on the London Stock Exchange. These costs were treated as
Exceptional costs in the year ended 31 March 2016 as they relate to listing costs and considered to be one-off in nature.
12. Taxation
GROUP
£‘000
Analysis of charge for the year:
Current tax
Current tax on profit for the year
Adjustments in respect of previous years
Total current tax
Deferred tax
Origination and reversal of temporary differences
Adjustments in respect of previous years
Impact of change in tax rate
Total deferred tax
Tax charge
Year ended
Year ended
31 March
31 March
2016
2015
10,769
354
11,123
77
(436)
151
(208)
10,915
9,165
(76)
9,089
(944)
625
–
(319)
8,770
CMC Markets plcAnnual Report 2016Financial statementsFinancial statements The standard rate of UK corporation tax changed from 21% to 20% with effect from 1 April 2015. Taxation outside the UK is
calculated at the rates prevailing in the respective jurisdictions. The effective tax rate of 20.45% (Year ended 31 March 2015:
20.16%) differs from the standard rate of UK corporation tax rate of 20% (Year ended 31 March 2015: 21%). The differences
are explained below:
GROUP
£‘000
142
Profit before taxation
Profit multiplied by the standard rate of corp. tax in the UK of 20% (31 March 2015: 21%)
Adjustment in respect of foreign tax rates
Adjustments in respect of previous years
Impact of change in tax rate
Effect of research and development tax credits
Expenses not deductable for tax purposes
Income not subject to tax
Irrecoverable foreign tax
Recognition of previously unrecognised tax losses
Other differences
Tax charge
Year ended
Year ended
31 March
31 March
2016
53,376
10,675
469
(82)
151
(41)
1,440
(47)
214
(1,816)
(48)
10,915
2015
43,510
9,137
586
549
–
195
230
(12)
(8)
(1,888)
(19)
8,770
For the year ended 31 March 2016, the tax effect of exceptional costs that were not recognised for tax purposes was
£1,177,000 (Year ended 31 March 2015: £nil).
GROUP
£‘000
Tax charge relating to components of other comprehensive income
Tax on loss on net investment hedges
Tax on items recognised directly in Equity
Tax on Share based payments
13. Earnings per share (EPS)
Year ended
Year ended
31 March
31 March
2016
2015
–
31
664
–
Basic EPS is calculated by dividing the earnings attributable to the equity owners of the Company by the weighted average
number of ordinary shares in issue during the year excluding those held in employee share trusts which are treated as cancelled.
For diluted earnings per share, the weighted average number of ordinary shares in issue, excluding those held in employee share
trusts, is adjusted to assume conversion of all dilutive potential ordinary shares, which consists of share options granted to
employees during the year ended 31 March 2016.
GROUP
£‘000
Earnings attributable to ordinary shareholders (£ '000)
Weighted average number of shares used in the calculation of basic earnings per share ('000)
Dilutive effect of share options ('000)
Weighted average number of shares used in the calculation of diluted earnings per share (‘000)
Basic earnings per share (p)
Diluted earnings per share (p)
Year ended
Year ended
31 March
31 March
2016
42,461
281,189
1,206
282,395
15.1
15.0
2015
34,740
279,229
928
280,157
12.4
12.4
For the year ended 31 March 2016, £1,206,000 (Year ended 31 March 2015: 928,000) potentially dilutive weighted average
ordinary shares in respect of share options in issue were included in the calculation of diluted EPS.
14. Dividends
GROUP
£‘000
Declared and paid in each year
Final dividend for 2015 at 3.57p per share (2014: 2.14p)
Interim dividend for 2016 at 3.57p per share (2015: 2.14p)
Special dividend for 2016 at 1.79p per share (2015: Nil)
Total
Year ended
Year ended
31 March
31 March
2016
2015
9,968
9,978
4,989
5,975
5,975
–
24,935
11,950
143
The final dividend for 2016 of 5.36p per share, amounting to £15,392,000 was proposed by the board on 7 June 2016 and has not
been included as a liability at 31 March 2016. The dividend will be paid on 29 September 2016, following approval at the
Company’s AGM, to those members on the register at the close of business on 9 September 2016.
The dividends paid or declared in relation to the financial year are set out below:
GROUP
£‘000
Declared per share
Interim dividend
Special dividend
Final dividend
Total dividend
15. Intangible assets
GROUP
£ ‘000
Cost
At 1 April 2014
Additions
Disposals
Foreign currency translation
At 31 March 2015
Additions
Foreign currency translation
At 31 March 2016
Accumulated amortisation
At 1 April 2014
Charge for the year
Disposals
Foreign currency translation
At 31 March 2015
Charge for the year
Foreign currency translation
At 31 March 2016
Carrying amount
At 1 April 2014
At 31 March 2015
At 31 March 2016
Year ended
Year ended
31 March
31 March
2016
2015
3.57p
1.79p
5.36p
10.72p
2.14p
–
3.57p
5.71p
Trademarks
Computer
and trading
Client
Goodwill
software
licences
relationships
Total
11,500
–
–
–
114,459
1,866
–
(1,574)
11,500
114,751
–
–
1,092
739
2,991
–
(1,600)
(89)
1,302
–
50
11,500
116,582
1,352
3,921
–
(900)
(232)
2,789
–
109
2,898
132,871
1,866
(2,500)
(1,895)
130,342
1,092
898
132,332
(11,500)
(111,548)
(2,594)
(3,138)
(128,780)
–
–
–
(1,866)
–
1,573
(11,500)
(111,841)
–
–
(1,845)
(737)
(11,500)
(114,423)
–
–
–
2,911
2,910
2,159
(46)
1,600
255
(785)
(45)
(32)
(862)
397
517
490
(325)
900
5
(2,237)
2,500
1,833
(2,558)
(126,684)
(216)
(124)
(2,106)
(893)
(2,898)
(129,683)
783
231
–
4,091
3,658
2,649
Computer software includes capitalised development costs of £26,487,000 relating to the Group’s Next Generation trading
platform with carrying amount of £nil at 31 March 2016. (Carrying amount at 31 March 2015: £44,000).
CMC Markets plcAnnual Report 2016Financial statementsFinancial statements Impairment
Goodwill
During the year ended 31 March 2009, impairment tests carried out resulted in the carrying value of goodwill being fully written
down to £nil. There have been no subsequent acquisitions therefore no additional goodwill has been recognised.
Other intangibles
Other intangibles are tested for impairment if events or changes in circumstances indicate that the carrying amount of the asset
may not be recoverable. There was no impairment identified in the year ended 31 March 2016 (Year ended 31 March 2015: £nil).
144
At 31 March 2016, the Group had no material capital commitments in respect of intangible assets (At 31 March 2015: £nil).
17. Investment in subsidiary undertakings
COMPANY
£ ‘000
At 1 April
Capital contribution relating to share based payments
Investment
Impairment
At 31 March
31 March
31 March
2016
2015
162,576
162,576
1,732
4,126
168,434
(1,398)
167,036
–
–
162,576
–
145
162,576
16. Property, plant and equipment
The list below includes all of the Group’s direct and indirect subsidiaries as at 31 March 2016:
GROUP
£ ‘000
Cost
At 1 April 2014
Additions
Disposals
Foreign currency translation
At 31 March 2015
Additions
Disposals
Foreign currency translation
At 31 March 2016
Accumulated depreciation
At 1 April 2014
Charge for the year
Disposals
Foreign currency translation
At 31 March 2015
Charge for the year
Disposals
Foreign currency translation
At 31 March 2016
Carrying amount
At 1 April 2014
At 31 March 2015
At 31 March 2016
Furniture,
Leasehold
fixtures and
Computer
improvements
equipment
hardware
Total
13,046
1,430
–
(135)
14,341
147
(274)
28
8,408
454
(169)
(252)
8,441
760
–
199
20,443
6,700
(321)
(245)
26,577
1,993
(92)
122
14,242
9,400
28,600
(3,914)
(1,436)
–
94
(5,256)
(1,038)
215
(22)
(7,158)
(734)
46
210
(7,636)
(455)
–
(140)
(17,092)
(2,527)
308
220
(19,091)
(2,458)
92
(103)
41,897
8,584
(490)
(632)
49,359
2,900
(366)
349
52,242
(28,164)
(4,697)
354
524
(31,983)
(3,951)
307
(265)
(6,101)
(8,231)
(21,560)
(35,892)
9,132
9,085
8,141
1,250
805
1,169
3,351
7,486
7,040
13,733
17,376
16,350
At 31 March 2016, the Group had no material capital commitments in respect of property, plant and equipment
(31 March 2015: £nil).
The net book value amount of property, plant and equipment includes £3,225,000 (31 March 2015: £4,536,000) in respect
of computer hardware held under finance leases.
CMC Markets Holdings Ltd
CMC Markets UK Holdings Ltd
CMC Markets UK plc
Information Internet Ltd
CMC Spreadbet plc
CMC Markets Digital Options GmbH
CMC Markets Overseas Holdings Ltd
CMC Markets Asia Pacific Pty Ltd
CMC Markets Pty Ltd
CMC Markets Group Australia Pty Ltd
CMC Markets Stockbroking Ltd
CMC Markets Stockbroking Nominees Pty Ltd
CMC Markets Stockbroking Nominees (No. 2 Account) Ltd
CMC Markets Canada Inc.
CMC Markets NZ Ltd
Redmonitor GmbH
CMC Markets Singapore Pte Ltd
Country of
incorporation
Principal
activities
England
England
England
England
England
Austria
England
Australia
Australia
Australia
Australia
Australia
Australia
Canada
New Zealand
Austria
Singapore
Holding company
Holding company
Online trading
IT development
Financial spread betting
IT development
Holding company
Online trading
Training and education
Holding company
Stock broking
Stock broking nominee
Dormant
Client introducing office
Online trading
IT development
Online trading
Held
Directly
Indirectly
Indirectly
Indirectly
Indirectly
Indirectly
Indirectly
Indirectly
Indirectly
Indirectly
Indirectly
Indirectly
Indirectly
Indirectly
Indirectly
Indirectly
Indirectly
A new directly held holding company, CMC Markets Holdings Ltd, was incorporated on 1 February 2016. On 4 February 2016
the Company transferred its direct shareholding in CMC Markets UK Holdings Ltd and CMC Markets Overseas Holdings Ltd to
CMC Markets Holdings Ltd by way of a share for share agreement.
All shareholdings are of ordinary shares. The issued share capital of all subsidiary undertakings is 100% owned, which also
represents the proportion of the voting rights in the subsidiary undertakings.
The list below includes all of the Group’s direct and indirect subsidiaries dissolved since 1 April 2015:
Country of
incorporation
Date of dissolution
Direct parent
CMC International Financial Consulting
China
19 May 2015
CMC Markets Pty Ltd
(Beijing) Co. Ltd
The list below includes all of the Group’s employee benefit trusts as at 31 March 2016:
CMC Markets Plc Employee Share Trust
CMC Markets Plc UK Share Incentive Plan
CMC Markets 2007 Employee Benefit Trust
CMC Employee Share Scheme Trust
Country of incorporation
Jersey
England
Isle of Man
Isle of Man
CMC Markets plcAnnual Report 2016Financial statementsFinancial statements 18. Trade and other receivables
21. Trade and other payables
£ ‘000
Trade receivables
Less: provision for impairment of trade receivables
146
Trade receivables – net
Amounts due from Group companies
Prepayments and accrued income
Stock broking debtors
Other debtors
Total
GROUP
COMPANY
31 March
31 March
31 March
31 March
2016
4,466
(3,990)
476
–
7,697
7,151
5,607
20,931
2015
6,603
(5,885)
718
–
3,632
12,690
1,726
18,766
2016
2015
–
–
–
–
–
–
–
–
–
–
–
35,444
–
–
–
35,444
Stock broking debtors represent the amount receivable in respect of equity security transactions executed on behalf of clients
with a corresponding balance included within trade and other payables (note 21).
19. Financial investments
GROUP
£ ‘000
At 1 April
Purchase of securities
Coupon receipts
Accrued interest
Net gains transferred to equity
At 31 March
31 March
31 March
2016
–
20,633
(287)
24
4
20,374
2015
–
–
–
–
–
–
The effective interest rates of securities held at the year-end range from 0.28% to 0.45%.
Financial investments are shown as current assets when they have a maturity less than one year and are held as ‘available-for-
sale’. The fair value of securities held is based on closing market prices at the year-end as published by the UK Debt
Management Office.
20. Cash and cash equivalents
£ ‘000
Gross cash and cash equivalents
Less: Client monies
Own cash and cash equivalents
Analysed as:
Cash at bank
Short-term deposits
GROUP
COMPANY
31 March
31 March
31 March
31 March
2016
304,364
(226,084)
2015
270,939
(232,328)
2016
15,000
–
78,280
38,611
15,000
75,577
2,703
38,611
15,000
–
–
2015
–
–
–
–
–
Cash and cash equivalents comprise cash at bank and other short-term highly liquid investments, with maturities of three
months or less. Cash at bank earns interest at floating rates, based on daily bank deposit rates.
£ ‘000
Current
Trade payables
Less: Client monies
Trade payables – net
Amount owing to Group companies
Tax and social security
Stock broking creditors
Accruals and deferred income
Non-current
Accruals and deferred income
Total
22. Borrowings
GROUP
£ ‘000
Current
Finance lease liabilities
Other liabilities
Non-current
Finance lease liabilities
Other liabilities
Total
GROUP
£ ‘000
Finance lease liabilities
Amounts payable under finance lease:
Within one year
In the second to fifth years inclusive
After five years
Less: future finance charges
Present value of lease obligations
The present value of finance lease liabilities is repayable as follows:
Within one year
In the second to fifth years inclusive
After five years
Present value of lease obligations
GROUP
COMPANY
31 March
31 March
31 March
31 March
2016
2015
2016
2015
228,329
(226,084)
240,131
(232,328)
2,245
–
1,035
9,186
22,272
34,738
3,479
38,217
7,803
–
859
11,833
18,228
38,723
3,926
42,649
–
–
–
–
–
–
147
35,548
53,438
–
–
1,422
36,970
–
–
576
54,014
–
–
36,970
54,014
31 March
31 March
2016
2015
1,333
22
1,355
1,030
55
1,085
2,440
1,377
22
1,399
2,376
77
2,453
3,852
31 March
31 March
2016
2015
1,441
1,079
–
2,520
(157)
2,363
1,333
1,030
–
2,363
1,573
2,538
–
4,111
(358)
3,753
1,377
2,376
–
3,753
CMC Markets plcAnnual Report 2016Financial statementsFinancial statements The present value of finance lease liabilities is repayable as follows:
The fair value of derivative contracts is based on the market price of comparable instruments at the balance sheet date.
All derivative financial instruments have a maturity date of less than one year.
31 March
31 March
Held for trading
GROUP
£ ‘000
Within one year
In the second to fifth years inclusive
After five years
148
Present value of lease obligations
The weighted average interest rates paid were as follows:
GROUP
%
Finance Leases
2016
1,333
1,030
–
2,363
2015
1,377
2,376
–
3,753
31 March
31 March
2016
6.03%
2015
6.37%
The fair value of financial liabilities is approximate to the book value shown above.
Bank loans
In June 2015, the revolving credit facility was renewed at a level of £40,000,000, where £20,000,000 had a maturity date of
June 2016 and £20,000,000 had a maturity date of June 2018. This facility can only be used to meet broker margin
requirements of the Group. The rate of interest payable on any loans is the aggregate of the applicable margin and LIBOR.
Other fees such as commitment fees, legal fees and arrangement fees are also payable on this facility (note 10).
Undrawn borrowing facilities
In all reported years, the Group has an undrawn multi-currency overdraft facility, with NatWest Bank plc of £7,500,000, which
is repayable on demand. The facility is available in Sterling, Canadian Dollars, Euros, Japanese Yen, Swedish Kronor, Swiss Francs,
US Dollars, Australian Dollars and Hong Kong Dollars. The interest rate for the Sterling overdraft is NatWest Bank’s Base Rate
plus 2% per annum and, for all other currencies, the relevant NatWest Bank currency lending rate.
23. Derivative financial instruments
GROUP
Assets
£ ‘000
Held for trading
Index, commodity, foreign exchange and treasury futures
Forward foreign exchange contracts
Held for hedging
Forward foreign exchange contracts – economic hedges
Forward foreign exchange contracts – net investment hedges
Total
GROUP
Liabilities
£ ‘000
Held for trading
Index, commodity, foreign exchange and treasury futures
Forward foreign exchange contracts
Held for hedging
Forward foreign exchange contracts – economic hedges
Forward foreign exchange contracts – net investment hedges
Total
31 March
31 March
2016
2015
588
–
207
–
795
199
2,783
34
259
3,275
31 March
31 March
2016
2015
(1,708)
(1,550)
(188)
(1,550)
(4,996)
(624)
–
(151)
(30)
(805)
As described in note 4, the Group enters derivative contracts in order to hedge its market price risk exposure arising from open
client positions.
Held for hedging
The Group’s forward foreign exchange contracts are designated as either economic or net investment hedges.
149
Economic hedges are held for the purpose of mitigating currency risk relating to transactional currency flows arising from
earnings in foreign currencies but do not meet the criteria for designation as hedges. During the year ended 31 March 2016,
£267,000 of losses net of revaluation gains or losses relating to economic hedges were recognised in the income statement
(Year ended 31 March 2015, gains: £374,000).
The Group has designated a number of foreign exchange derivative contracts as hedges of the net investment in the Group’s
foreign operations. At 31 March 2016, £5,689,000 (31 March 2015: £4,517,000) of fair value losses were recorded in net
investment hedging reserve within other reserves. At 31 March 2016, £3,972,000 (31 March 2015: £2,348,000) of fair value
gains were recorded in translation reserve within other reserves. All changes in the fair value were treated as being effective
under IAS 39 – Financial Instruments: Recognition and Measurement and Eligible Hedged Items.
The maximum exposure to credit risk at the reporting date is the fair value of the derivative assets at the balance sheet date..
24. Provisions
GROUP
£ ‘000
At 1 April 2014
Additional provision
Utilisation of provision
Currency translation
At 31 March 2015
Additional provision
Utilisation of provision
Currency translation
At 31 March 2016
EBT
Property
commitments
related
177
3
–
–
180
–
(20)
–
160
461
1,226
(198)
(58)
1,431
35
(67)
8
1,407
Other
–
4,157
–
–
4,157
–
(4,157)
–
–
Total
638
5,386
(198)
(58)
5,768
35
(4,244)
8
1,567
The provision relating to employee benefit trusts (EBT) represents the obligation to distribute assets held in employee benefit
trusts to beneficiaries.
The property related provisions include dilapidation provisions and discounted obligations under onerous lease contracts less
any amounts considered recoverable by management. Dilapidation provisions have been capitalised as part of cost of leasehold
improvements and are amortised over the term of the lease.
Other provisions relate to litigation provisions. The costs relating to these have been presented as exceptional costs in the
income statement, in the prior year.
GROUP
£ ‘000
Analysis of Total Provisions
Current
Non-current
Total
The Group has no contingent liabilities as at 31 March 2016 (31 March 2015: £nil).
31 March
31 March
2016
2015
160
1,407
1,567
4,345
1,423
5,768
CMC Markets plcAnnual Report 2016Financial statementsFinancial statements 25. Deferred tax
£ ‘000
Deferred tax assets to be recovered within 12 months
Deferred tax assets to be recovered after 12 months
150
Deferred tax liabilities to be settled within 12 months
Deferred tax liabilities to be settled after 12 months
Net deferred tax asset
GROUP
COMPANY
31 March
31 March
31 March
31 March
2016
3,303
4,398
7,701
(2)
(3)
(5)
7,696
2015
2,278
5,274
7,552
(108)
(20)
(128)
7,424
2016
2015
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Deferred income taxes are calculated on all temporary differences under the liability method at the tax rate expected to apply
when the deferred tax will crystallise. The gross movement on deferred tax is as follows:
£ ‘000
At beginning of year
Credit / (Charge) to income for the year
Credit to equity for the year
Change in tax rate
Foreign currency translation
At end of year
GROUP
COMPANY
31 March
31 March
31 March
31 March
2016
7,424
359
31
(151)
33
7,696
2015
6,753
(303)
664
–
310
7,424
2016
2015
–
–
–
–
–
–
–
–
–
–
–
–
The following table details the deferred tax assets and liabilities recognised by the Group and movements thereon during the year:
GROUP
£ ‘000
At 1 April 2014
(Charge) / credit to income for the year
Credit to equity for the year
Foreign currency translation
At 31 March 2015
Credit / (Charge) to income for the year
Credit to equity for the year
Change in tax rate
Foreign currency translation
At 31 March 2016
Accelerated
capital
Other timing
Tax losses
allowances
differences
3,247
(673)
–
234
2,808
1,112
–
–
48
3,968
2,812
(42)
–
25
2,795
(490)
–
(122)
–
2,183
694
412
664
51
1,821
(263)
31
(29)
(15)
1,545
Total
6,753
(303)
664
310
7,424
359
31
(151)
33
7,696
The recognition of deferred tax assets is based upon whether it is more likely than not that sufficient and suitable taxable profits
will be available in the future against which the reversal of the temporary differences can be deducted. The recoverability of the
Group’s deferred tax asset in respect of carry forward losses is based on an assessment of the future levels of taxable profit
expected to arise that can be offset against these losses. The Group’s expectations as to the level of future taxable profits take
into account the Group’s long term financial and strategic plans and anticipated future tax adjusting items. In making this
assessment account is taken of business plans including the board approved Group profit forecast.
Deferred tax assets are recognised for tax losses carried forward to the extent that the realisation of the related tax benefit
through future taxable profits is probable. As on 31 March 2016 the Group did not recognise deferred tax assets of
£15,690,000 (Year ended 31 March 2015: £16,882,000) in respect of losses amounting to £52,301,000 (Year ended
31 March 2015: £56,272,000). In respect of these losses, all relate to the Group’s Australian subsidiaries and there are
no time limits on their utilisation.
The Group has recognised deferred tax asset of £3,968,000 in respect of losses in the Group’s Australian subsidiaries as on
31 March 2016 (Year ended 31 March 2015: £2,808,000).
The change in the main rate of UK corporation tax from 20 per cent to 19 per cent, effective from 1 April 2017, passed into
legislation in July 2015 through the 2015 Finance Act. The change in the main rate of UK corporation tax from 19 per cent to
18 per cent, effective from 1 April 2020, also passed into legislation in July 2015 through the 2015 Finance Act. The Group has
assessed the impact of these changes in line with accounting policies and all deferred tax balances are recorded at the tax rate
expected to apply when the deferred tax will crystallise.
26. Share capital and premium
151
GROUP AND COMPANY
Authorised
Ordinary shares of 25p
Allotted, issued and fully paid
Ordinary shares of 25p
Deferred shares of 25p
Total
Share class rights
Number
£ ‘000
31 March
31 March
31 March
31 March
2016
2015
2016
2015
400,000,000
400,000,000
100,000
100,000
287,923,211
280,296,862
2,478,086
2,478,086
290,401,297
282,774,948
71,980
620
72,600
70,074
620
70,694
The Company has two classes of shares, Ordinary and Deferred, neither of which carries a right to fixed income. Deferred shares
have no voting or dividend rights. In the event of a winding-up, ordinary shares shall be repaid at nominal value plus £0.5m each
in priority to deferred shares.
GROUP AND COMPANY
Number
At 1 April 2014
Conversion of ordinary shares to deferred shares
At 31 March 2015
New shares issued
At 31 March 2016
GROUP AND COMPANY
£ ‘000
At 1 April 2014
Conversion of ordinary shares to deferred shares
At 31 March 2015
New shares issued
At 31 March 2016
Movements in share capital and premium
Ordinary
Deferred
shares
shares
Total
280,299,177
2,475,771
282,774,948
(2,315)
2,315
–
280,296,862
2,478,086
282,774,948
7,626,349
–
7,626,349
287,923,211
2,478,086
290,401,297
Ordinary
Deferred
shares
70,075
(1)
70,074
1,906
71,980
shares
619
1
620
–
620
Share
premium
33,362
–
33,362
12,881
46,243
Total
104,056
–
104,056
14,787
118,843
On admission on 5 February 2016, the company issued 6,239,333 shares with nominal value of 25p to public investors and
certain Non-Executive directors for a consideration of £14,974,000. In addition 1,387,016 shares with nominal value of 25p
were issued to Employee benefit trusts and certain employees of the group. Total costs of £534,000 relating to the issue of
new shares have been recognised directly in share premium.
During the year ended 31 March 2016, no (31 March 2015: 2,315) ordinary shares were converted to deferred shares in
accordance with the terms of grant to employees who have now left the Group.
CMC Markets plcAnnual Report 2016Financial statementsFinancial statements 27. Own shares held in trust
GROUP
Ordinary shares of 25p
At 1 April 2014
At 31 March 2015
Acquisition
Disposal
152
At 31 March 2016
Number
£ ‘000
1,069,282
1,069,282
563,816
(876,848)
756,250
1,983
1,983
141
(1,140)
984
The shares are held by the CMC Markets Plc Employee Benefit trust for the purpose of encouraging or facilitating the holding of
shares in the Company for the benefit of employees and the trustees will apply the whole or part of the trust’s funds to facilitate
dealing in shares by such beneficiaries.
28. Share-based payment
Number
Scheme
IPO Award (UK)
IPO Award (Australia)
Executive Retention Scheme
Executive Retention Scheme
Long Term Incentive Plan
Long Term Incentive Plan
Share price
at award
Vesting date
Awarded
during
the year
Lapsed
during
the year
Exercised
during
At the end
the year
of the year
222p
229p
240p
240p
240p
240p
5 February 2016
1,641,525
5 February 2016
5 February 2017
5 February 2018
5 February 2017
5 February 2018
346,200
444,425
444,425
1,018,863
1,018,862
–
–
–
–
–
–
1,641,525
346,200
–
–
–
–
–
–
444,425
444,425
1,018,863
1,018,862
153
In addition, 216,450 cash settled shares were granted and vested on listing with an additional 385,950 shares granted on listing
of which 108,225 vest on 5 February 2017, 108,225 vest on 5 February 2018 and 169,500 on 5 February 2019 and have
dividend equivalence. The only vesting condition is that the employees remain employed by the Group.
The Company operates both equity and cash settled share options schemes for certain employees including Directors.
2015 UK SIP Awards
At listing all existing equity and cash settled schemes under the Management Equity Plan 2009 (‘2009 MEP’) were exercised and
new schemes introduced. New schemes have been granted under the terms of the Management Equity Plan 2015 (‘2015 MEP’)
and the UK Share Incentive Plan (‘UK SIP’). Equity settled schemes are offered to certain employees, including Executive
Directors in the UK and Australia and cash settled schemes are offered to certain employees outside of the UK and Australia.
Income statement charge for share-based payments
The total charge costs relating to these schemes for the year ended 31 March 2016 was £6,486,000 (Year ended 31 March
2015: £951,000) which include exceptional costs detailed in Note 8.
For the year ended 31 March 2016 the charge relating to equity-settled share-based payments was £5,254,000 (Year
ended 31 March 2015: £374,000) and the charge relating to cash-settled share-based payments was £1,232,000 (Year ended
31 March 2015: £577,000).
No shares were gifted to employees during the year (Year ended 31 March 2015: nil).
Current Schemes
2015 MEP
Share options granted under the 2015 MEP have been in the form of ‘non-market performance’ awards. Three types of equity
settled awards were made in February 2015:
• IPO Award: awards to senior management and critical staff which were both granted and vested at listing.
• Executive Retention Scheme: awards to certain Executive Directors which were granted at listing. The only vesting condition
is that the Executive Directors remain employed by the Group. The options have dividend equivalence where additional
shares will be awarded in place of dividends on vesting.
• Long Term Incentive Plan: awards to senior management and critical staff, excluding Executive Directors, which were granted
at listing. The only vesting condition is that the employees remain employed by the Group. The options have dividend
equivalence where additional shares will be awarded in place of dividends on vesting.
SIP awards of £3,600 of free shares were made to all eligible UK employees at listing. All free shares will vest after three years
should the employees remain employed by the Group for the term of the award. Shares awarded under the scheme are held in
trust in accordance with UK tax authority conditions. Employees are entitled to receive dividends in the form of additional
shares on the shares held in trust as long as they remain employees. A total of 477,000 shares were awarded under the scheme.
Number
Share price
at award
Vesting date
240p
11 February 2019
Awarded
during
the year
477,000
Lapsed
during
the year
–
Exercised
during
At the end
the year
of the year
–
477,000
Scheme
UK SIP Award
Historic Schemes
2009 MEP
Share options granted under the 2009 MEP were in the form of ‘market performance’ and ‘non-market performance’ based
awards. All existing equity and cash settled options under the 2009 scheme were cash cancelled at listing and the 934,300
equity options are classed as exercised when disclosing the movement in share options.
• Market performance based option scheme. Share options granted up to and during the year ended 31 March 2013 which had
market performance related conditions attached. The options are exercisable at nil cost and have no individually based
performance criteria attached. The fair value of awards made during the year was calculated using a Monte Carlo option
pricing model. The significant inputs into the model were the share price of £0.80 at the grant date, dividend yield of 3%,
volatility of 30% which was calculated by reference to a number of comparable quoted companies and the annual risk-free
interest rate of 1.7%, which resulted in a weighted average fair value per award granted of £0.77. These options lapsed
during year ended 31 March 2014 and year ended 31 March 2015. No options were exercised and no further market
performance based options where granted.
• Non-market performance based option scheme – Equity settled. Share options granted in the year ended 31 March 2015
under the 2009 MEP had no performance conditions attached. They were exercisable at nil cost and had no individually
based performance criteria attached. The fair value of the awards made during the year was calculated using a profit
multiple based on quoted comparable groups and the Group’s current year forecast which resulted in a weighted average
fair value per award granted of £1.74.
• Non-market performance based option scheme – Cash settled. Share options granted in the year ended 31 March 2015 which
had no company performance conditions attached. They were exercised in February 2016 at the listing price.
CMC Markets plcAnnual Report 2016Financial statementsFinancial statements Movement in equity settled share options
29. Other reserves
5,391,300 new share options were granted in the year ended 31 March 2016 and these are detailed on the previous page in the
current schemes section. No options lapsed during the year ended 31 March 2016. Movements in the number of share options
outstanding are as follows:
154
GROUP
Number
At beginning of year
Granted
Lapsed
Exercised
At end of year
The vesting and expiry dates of outstanding options are shown below:
31 March
31 March
2016
934,300
5,391,300
2015
911,035
309,000
–
(285,735)
(2,922,025)
–
3,403,575
934,300
GROUP
£ ‘000
At 1 April 2014
Currency translation differences
Profit on net investment hedges
Tax on profit on net investment hedges
At 31 March 2015
Currency translation differences
Profit on net investment hedges
Profits recycled to income statement
Gain on financial investments
Net
investment
Translation
hedging
Available for
reserve
sale reserve
reserve
3,833
(1,485)
–
–
2,348
1,563
–
61
–
(5,580)
–
399
664
(4,517)
–
(1,172)
–
–
Merger
reserve
(47,800)
–
–
–
(47,800)
–
–
–
–
Total
(49,547)
(1,485)
399
664
(49,969)
1,563
(1.172)
61
4
(47,800)
(49,513)
155
–
–
–
–
–
–
–
–
4
4
31 March
31 March
Translation reserve
At 31 March 2016
3,972
(5,689)
GROUP
Number
Year of grant
2013
2014
2015
2016
2016
2016
Matched options
Exercise period commencing
Exercise period ending
2016
Not applicable
Not applicable
Not applicable
5 February 2017
5 February 2018
11 February 2019
Not applicable
Not applicable
Not applicable
5 February 2017
5 February 2018
11 February 2019
–
–
–
1,463,288
1,463,287
477,000
2015
62,800
562,500
309,000
–
–
–
3,403,575
934,300
Under the terms of the 2009 MEP, certain employees were able to invest up to a specified amount to purchase ordinary shares
in the Company (the ‘bought’ shares) in order to receive a further 1 ½ free ‘matched’ options on the ‘matching’ date, being
1 October 2011. There are no performance conditions attached to the matched options other than continued employment
within the Group and ownership of the bought shares.
The average share price of the matched options exercised in 2013 was £0.40.
All matched options have now lapsed and no more bought shares were granted during the year ended 31 March 2016
(31 March 2015: nil).
GROUP
Number
At beginning of year
Exercised
Lapsed
At end of year
31 March
31 March
2016
–
–
–
–
2015
375,000
–
(375,000)
–
The translation reserve is comprised of translation differences on foreign currency net investments held by the Group.
During the year ended 31 March 2016, the Group liquidated its Chinese subsidiary; as a result an amount of £61,000
was recycled to the income statement.
Net investment hedging reserve
Overseas net investments are hedged using forward foreign exchange contracts. Gains and losses on instruments used to
hedge these overseas net investments are shown in the net investment hedging reserve. These instruments hedge balance
sheet translation risk, which is the risk of changes in reserves due to fluctuations in currency exchange rates. All changes in the
fair value were treated as being effective under IAS 39 – Financial Instruments: Recognition and Measurement and Eligible Hedged
Items.
Merger reserve
The merger reserve arose following a corporate restructure in 2005 when a new holding company, CMC Markets plc, was
created to bring all CMC companies into the same corporate structure. The merger reserve represents the difference between
the nominal value of the holding company’s share capital and that of the acquired companies.
CMC Markets plcAnnual Report 2016Financial statementsFinancial statements 30. Cash generated from operations
32. Retirement benefit plans
£ ‘000
Cash flows from operating activities
Profit before taxation
156
Adjustments for:
Net interest income
Dividends received
Finance costs
Depreciation
Amortisation of intangible assets
Impairment of investment in subsidiaries
Share–based payment
Changes in working capital:
(Increase) / decrease in trade and other receivables
Decrease / (increase) in amounts due from brokers
Decrease in trade and other payables
Decrease / (increase) in net derivative financial instruments
(Decrease) / increase in provisions
Cash generated from operations
GROUP
COMPANY
Year ended
Year ended
Year ended
Year ended
31 March
31 March
31 March
31 March
2016
2015
2016
2015
53,376
43,510
7,708
(27)
(1,762)
(2,118)
–
772
3,951
2,106
–
205
(2,189)
25,564
(4,432)
6,671
(4,201)
80,061
–
896
4,697
2,237
–
374
895
(43,930)
(1,383)
(3,946)
5,130
6,362
–
(15,000)
–
–
–
1,398
1,771
35,444
–
(17,044)
–
–
–
–
28
–
–
–
374
1,321
–
10,286
–
–
14,277
11,982
The movement in provisions for the year ending 31 March 2015 includes £4,157,000 of exceptional ligation costs (note 8)
which were paid during the year ended 31 March 2016.
The movement in trade and other payables for the year ended 31 March 2016 also includes £2,230,000 of exceptional listing
related accrued expenses.
The movement in trade and other receivables for the year ended 31 March 2016 also includes £1,110,000 of exceptional
litigation income expected to be received by 30 September 2017.
31. Operating lease commitments
GROUP
£ ’000
Minimum lease payments under operating leases recognised in expense for the year
Year ended
Year ended
31 March
31 March
2016
2,065
2015
2,717
Operating lease payments represent rentals payable by the Group for office space. As on 31 March 2016, leases are negotiated
for an average term of 3.2 years (31 March 2015: 3.7 years) and rentals are fixed for an average of 2.7 years (31 March 2015:
2.7 years).
A defined contribution plan is a post-employment benefit plan into which the Group pays fixed contributions to a third party
pension provider and has no legal or constructive obligation to pay further amounts. Contributions are recognised as staff
expenses in the income statement in the years during which related employee services are fulfilled.
The Group operates defined contribution pension schemes for its Directors and employees. The assets of the schemes are held
separately from those of the Group in independently administered funds.
The pension charge for these plans for the year ended 31 March 2016 was £1,145,000 (Year ended 31 March 2015:
£1,031,000).
157
33. Related party transactions
Group transactions
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and
are not disclosed in this section of the note.
Transactions between the Group and its other related parties are disclosed below:
Compensation of key management personnel
GROUP
£’000
Key management compensation:
Short-term employee benefits
Post-employment benefits
Share based payments
Aggregate remuneration of highest paid director:
Key management comprise the Board of CMC Markets plc only.
Directors’ transactions
Year ended
Year ended
31 March
31 March
2016
2015
1,942
44
420
2,406
740
1,338
31
374
1,743
500
During the year ended 31 March 2016, £34,648 (Year ended 31 March 2015: £77,261) was paid to Astre Associates Limited
in respect of non-executive director fees payable to John Jackson.
During the year ended 31 March 2016, the Group donated £450,000 to The Peter Cruddas Foundation (Year ended 31 March
2015: £355,000), a charity at which Peter Cruddas holds a Trustee position.
34. Ultimate controlling party
The Group had outstanding commitments under non-cancellable operating leases as follows:
The Group’s ultimate controlling party is Peter Cruddas by virtue of his majority shareholding in CMC Markets plc.
GROUP
£ ‘000
Within one year
Within two to five years
After five years
31 March
31 March
2016
2,755
8,330
6,056
17,141
2015
3,134
10,043
9,418
22,595
CMC Markets plcAnnual Report 2016Financial statementsFinancial statements
Corporate information
Corporate information
Corporate information
UK – Head Office
France
Poland
CMC Markets UK Spółka
Akcyjna Oddział w Polsce
Emilii Plater 53
00-113 Warsaw
T +48 22 160 5600
F +48 22 160 5690
E biuro@cmcmarkets.pl
www.cmcmarkets.pl
Singapore
CMC Markets Singapore Pte Limited
50 Raffles Place #14-06
Singapore Land Tower
Singapore 048623
T 1800 559 6000 (Local)
T +65 6559 6000
E info@cmcmarkets.com.sg
www.cmcmarkets.com.sg
Spain
CMC Markets UK plc
Sucursal en España
Calle Serrano No 21
4th Floor
28001 Madrid
T +34 911 140 700
E info@cmcmarkets.es
www.cmcmarkets.es
Sweden
CMC Markets UK plc Filial
Stockholm
Hamngatan 11
111 47 Stockholm
T +46 (0)8 5069 3200
E info@cmcmarkets.se
www.cmcmarkets.se
CMC Markets plc, CMC Markets UK plc,
CMC Spreadbet plc
133 Houndsditch
London EC3A 7BX
T +44 (0)20 7170 8200
E info@cmcmarkets.co.uk
www.cmcmarkets.co.uk
CMC Markets UK plc
4ième étage
37 Avenue des Champs-Elysées
75008 Paris
T +33 (0)1 53 83 14 03
E gestionclients@cmcmarkets.fr
www.cmcmarkets.fr
158
Australia
Germany
CMC Markets Niederlassung Frankfurt
am Main der CMC Markets UK Plc
Garden Tower
Neue Mainzer Straße 46-50
60311 Frankfurt am Main
T +49 (0)69 2222 44 000
E kundenservice@cmcmarkets.de
www.cmcmarkets.de
Italy
CMC Markets UK plc Succursale di
Milano
Corso di Porta Romana 68
20122 Milano
T +39 02 3600 9604
E info@cmcmarkets.it
www.cmcmarkets.it
New Zealand
CMC Markets NZ Limited
Level 25
151 Queen Street
Auckland
T +64 (0)9 359 1200
E info@cmcmarkets.co.nz
www.cmcmarkets.co.nz
Norway
CMC Markets UK plc Filial Oslo
Fridtjof Nansens Plass 6
0160 Oslo
T +47 22 01 97 02
E info@cmcmarkets.no
www.cmcmarkets.no
CMC Markets Asia Pacific Pty Ltd
CMC Markets Stockbroking Limited
Level 16
130 Pitt Street
Sydney NSW 2000
T 1300 303 888
T +61 (0)2 8221 2100
E info@cmcmarkets.com.au
www.cmcmarkets.com.au
Austria
CMC Markets Zweigniederlassung
Österreich
Millennium Tower
Wehlistraße 66/5. OG
1200 Wien
T +43 (0)1 532 1349 0
E kundenservice@cmcmarkets.at
www.cmcmarkets.at
Canada
CMC Markets Canada Inc.
Suite 1420
120 Adelaide Street West
Toronto
Ontario M5H 1T1
T +1 416 682 5000
E info@cmcmarkets.ca
www.cmcmarkets.ca
China
CMC Markets UK plc
Beijing Representative Office
Unit 22, Room 1901, Tower E2
Oriental Plaza
No1 East Chang An Avenue
Dong Cheng District
Beijing 100738
T +86 (0)10 8520 0021
E info@cmcmarkets.com.cn
www.cmcmarkets.com.cn
Registered Office
Registrars / Shareholder enquiries
Capita Asset Services can be contacted to deal with any
questions regarding your shareholding using the contact
details listed below. Alternatively, you can access
www.capitashareportal.com where you can view and manage
all aspects of your shareholding securely.
Email
shareholderenquiries@capita.co.uk
159
Mail
Capita Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
Phone
Tel: 0871 664 0300
Calls cost 12p per minute plus your phone company’s access charge. Calls outside
the United Kingdom will be charged at the applicable international rate. Lines
are open between 09:00 – 17:30, Monday to Friday excluding public holidays in
England and Wales.
CMC Markets plc
133 Houndsditch
London EC3A 7BX
United Kingdom
Registered number: 05145017
Tel: 020 7170 8200
Website: www.cmcmarkets.com/group
Company Secretary
Jonathan Bradshaw, ACIS
Investor relations
Email: investor.relations@cmcmarkets.com
Website: http://www.cmcmarkets.com/group/investor-relations
Brokers
Goldman Sachs International
Peterborough Court
133 Fleet Street
London EC4A 2BB
RBC Capital Markets
Riverbank House
2 Swan Lane
London EC4R 3BF
Independent auditors
PricewaterhouseCoopers LLP
7 More London Riverside
London SE1 2RT
Legal advisers
Linklaters LLP
One Silk Street
London EC2Y 8HQ
Media relations advisers
Camarco
107 Cheapside
London EC2V 6DN
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CMC Markets plcAnnual Report 2016Corporate information
With £10,000 and a basement room,
Nobody guessed how the business would boom.
You’ve relished the highs and battled the lows,
Where your energy comes from, God only knows!
But for 26 years, you’ve led all the way,
To gain the success and respect achieved here today,
So raise your glass and shout “chin chin”!
Congratulations! Good Luck! Let the new Chapter begin!
Fiona Cruddas, February 2016
CMC Markets plc133 HoundsditchLondon EC3A 7BXUnited KingdomTel +44 (0)20 7170 8200Fax +44 (0)20 7170 8499Email info@cmcmarkets.co.ukwww.cmcmarkets.com/group