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WisdomTree Commodity Securities Limited
Registered No: 90959
Annual Report and Audited Financial Statements for the
Year ended 31 December 2022
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Management and Administration
1
Directors’ Report
2-11
Statement of Directors’ Responsibilities
12
Independent Auditor’s Report
13-19
Statement of Profit or Loss and Other Comprehensive Income
20
Statement of Financial Position
21
Statement of Cash Flows
22
Statement of Changes in Equity
23
Notes to the Financial Statements
24-42
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Directors
Administrator
Registered Office
Registrar
Manager
Trustee
Commodity Contract Counterparty
Commodity Contract Counterparty
Collateral Custodian
Jersey Legal Advisers
Company Secretary
Auditor
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The directors of WisdomTree Commodity Securities Limited (“CSL” or the “Company”) submit herewith the
annual report and financial statements of the Company for the year ended 31 December 2022.
Directors
The names and particulars of the directors of the Company during and since the end of the financial year are:
Directors’ Interests
No director has an interest in the Shares of the Company as at the date of this report.
Principal Activities
The Company’s principal activity is the issue and listing of commodity securities (“Commodity Securities”).
The Company’s portfolio of Commodity Securities includes classic, longer dated, short and leveraged
Commodity Securities.
Commodity Securities are undated secured limited recourse financial instruments designed to track the price
of commodity futures, and give investors an exposure similar to that which could be achieved by managing a
fully cash-collateralised position in near-term futures contracts, less applicable fees. However, unlike
managing a futures position, Commodity Securities involve no need to roll from one futures contract to
another, no margin calls, and no other brokerage or other costs in holding or rolling futures contracts (although
security holders incur costs in holding Commodity Securities). No trading or management of futures contracts
is required by the Company. Commodity Securities allow investors to buy and sell their interest through the
trading of a security on the London Stock Exchange and any other exchange to which that security may be
admitted to trading from time to time.
Commodity Securities are backed by commodity contracts (“Commodity Contracts”) with terms corresponding
to the terms of Commodity Securities. The Company gains exposure to the movements in the commodity
indices by holding corresponding Commodity Contracts. The Company is currently party to two facility
agreements, one with Citigroup Global Markets Limited (“Citigroup”) and one with Merrill Lynch International
(“Merrill Lynch”) (together the “Commodity Contract Counterparties”), enabling the Company to create and
cancel Commodity Contracts on an ongoing basis. Each time Commodity Securities are issued or redeemed,
matching Commodity Contracts between the Company and a Commodity Contract Counterparty are created
or cancelled by the Company.
The price of each class of Commodity Security is calculated on a daily basis and reflects movements in the
commodity index relevant to that class since the previous day, adjusted by any applicable fees. Therefore, the
return for a particular class of Commodity Security will primarily be based on the performance of the relevant
commodity index.
The Company earns a management fee and a licence allowance based upon the number of Commodity
Securities in issue. These fees are expressed as an annual percentage (as set out below), calculated on a
daily basis and reflected in the net asset value (“NAV”) of the Commodity Securities on a daily basis, and paid
monthly in arrears.
The Company has entered into a service agreement with WisdomTree Management Jersey Limited (“ManJer”
or the “Manager”), whereby ManJer is responsible for supplying or procuring the supply of all management
and administration services required by the Company (including marketing), as well as the payment of costs
relating to the listing and issue of Commodity Securities. In return for these services, the Company has an
obligation to remunerate ManJer with an amount equal to the aggregate of the management fee, licence
allowance and the creation and redemption fees (the “ManJer Fee”). The management fee and licence
allowance are transferred directly to ManJer by the Commodity Contract Counterparties under the terms of
the Commodity Contracts.
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Principal Activities (continued)
Prior to 30 June 2022 ManJer received creation and redemption fees directly from the holders of Commodity
Securities who have entered into an authorised participant agreement with the Company (“Authorised
Participants”). After 30 June 2022 the creation and redemption fees are included and settled between the
Authorised Participants and the Commodity Contract Counterparties as part of each creation or redemption,
being transferred directly to ManJer by the Commodity Contract Counterparties on a monthly basis.
Accordingly, there are no cash flows through the Company.
Review of Operations
The most recent Prospectuses were issued on 14 December 2022 (Classic and Longer Dated) and 10
November 2022 (Short and Leveraged). As at 31 December 2022, the Company had the following number of
classes, in aggregate, of Commodity Securities in issue and admitted to trading on the following exchanges:
* Whilst Micro Securities are admitted to trading on the Stock Exchanges, it is not anticipated that any active
secondary market will develop in any of the Micro Securities. Furthermore, on an ongoing basis the Micro
Securities themselves are not traded, with Security Holders receiving the Commodity Securities in transactions.
As a result, Micro Securities have been excluded from the table above.
The Company has entered into contractual obligations to issue and redeem Commodity Securities at set prices
on each trading day. These prices are based on agreed formulae published in the Prospectuses, and are equal
to the published NAV of each class of Commodity Security. Each time Commodity Securities are issued or
redeemed, matching Commodity Contracts between the Company and a Commodity Contract Counterparty are
created or cancelled by the Company.
IFRS 13 requires the Company to identify the principal market for the Commodity Securities and to utilise the
available price within that principal market. The directors consider the stock exchanges where the Commodity
Securities are listed to be the principal market and as a result the fair value of the Commodity Securities is the
on-exchange price as quoted on the stock exchange demonstrating active trading with the highest trading
volume on each day that the price is obtained.
As a result of the difference in valuation between Commodity Contracts and Commodity Securities there is a
mis-match between the values recognised, and the results of the Company reflect a gain or loss on the
difference between the NAV of the Commodity Contracts and the price of Commodity Securities. The Company
recognises its assets (Commodity Contracts) and financial liabilities (Commodity Securities) at fair value in the
Statement of Financial Position. The gain or loss on Commodity Securities and Commodity Contracts is
recognised through profit or loss in line with the Company’s accounting policy. This is presented in more detail
in notes 7 and 8 to these financial statements.
The Company is entitled to a management fee and licence allowance which are calculated on a daily basis:
classic and longer dated Commodity Securities have a management fee rate of 0.49% per annum, with
the exception of WisdomTree Carbon Securities which has management fee rate of 0.35% per annum;
short and leveraged Commodity Securities have a management fee rate of 0.98% per annum; and
all Commodity Securities are subject to the licence allowance of 0.05% per annum.
The Company is also entitled to apply creation and redemption fees on the issue and redemption of Commodity
Securities.
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Review of Operations (continued)
During the year, the Company generated income from creation and redemption fees, management fees and
licence allowance as follows:
Non-GAAP Performance Measures
Under the terms of the service agreement with ManJer, the Company accrued expenses equal to the
management fee, licence allowance and creation and redemption fees, which, after taking into account other
operating income and expenses, resulted in a result before fair value movements for the year of USD Nil (2021:
USD Nil).
As the difference in the valuation of Commodity Contracts (held to support the Commodity Securities) and
Commodity Securities would be reversed on a subsequent redemption of the Commodity Securities and
cancellation of the corresponding Commodity Contracts (as described further in note 7), the Company presents
an adjusted Statement of Profit or Loss and Other Comprehensive Income and an adjusted Statement of
Changes in Equity in note 15 of the financial statements.
Coronavirus disease (COVID-19)
The Board continues to monitor the advice and developments relating to COVID-19. The WisdomTree group
has and continues to implement measures to maintain the ongoing safety and well-being of employees, whilst
continuing to operate business as usual.
Ukraine Invasion
On 24 February 2022, Russia engaged in military actions in the sovereign territory of Ukraine (the “Crisis”). The
Crisis has resulted in the implementation of sanctions and further actions by governments which, as well as the
Crisis itself, have impacted financial and commodities markets.
As Russia is one of the world’s major producers of Nickel, the Crisis has caused market turmoil which, inter
alia, resulted in substantial changes in the price of Nickel.
On 7 March 2022, the calculation agent determined that the intra-day price of the Commodity Contracts
backing the WisdomTree Nickel 3x Daily Short Securities (“3NIS”) had fallen to or below zero during the day of
7 March 2022. Furthermore, the Company also received notice from the Commodity Contract Counterparties
that 7 March 2022 was determined to be a compulsory pricing date in respect of all of the Commodity Contracts
of the same class as 3NIS and that therefore all of such Commodity Contracts were terminated on 7 March
2022 with no payments due to or from the Commodity Contract Counterparties, or from or to the Company. As
a result, the Company released an announcement to the Stock Exchanges that 3NIS was suspended from
trading and further that 3NIS was automatically subject to a compulsory redemption. The redemption amount
of 3NIS available for distribution to holders of 3NIS was calculated as zero.
Due to movements in Nickel prices since 7 March 2022, on 21 March 2022 the calculation agent determined
that the intra-day price of the Commodity Contracts backing the WisdomTree Nickel 3x Daily Leveraged
Securities (“3NIL”) had fallen to or below zero during the day of 21 March 2022. Furthermore, the Company
also received notice from the Commodity Contract Counterparties that 22 March 2022 was determined to be a
compulsory pricing date in respect of all of the Commodity Contracts of the same class as 3NIL and that
therefore all of such Commodity Contracts have been terminated on 22 March 2022 with no payments due to or
from the Commodity Contract Counterparties or from or to the Company. As a result, the Company released
an announcement to the Stock Exchanges that 3NIL was suspended from trading and further that 3NIL was
automatically subject to a compulsory redemption. The redemption amount of 3NIL available for distribution to
holders of 3NIL was calculated as zero.
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Review of Operations (continued)
Ukraine Invasion (continued)
In October 2022, the London Metal Exchange (“LME”) put out a discussion paper on the possibility of banning
aluminium, nickel, or copper sourced from Russia from being traded or stored within the LME system. If the
LME does introduce such a ban, it could reduce the physical supply of these commodities and, therefore, affect
prices. Markets may also react creating volatility in prices and Security Holders may be adversely affected.
As the Crisis continues, the board of directors (the “Board”) also continues to closely monitor and assess the
impact on the Company’s portfolio operations and valuation and will take any further actions needed or as
required under the terms of the applicable Prospectuses, as facts and circumstances are subject to change and
may be specific to investments and jurisdictions. Whilst it is not currently possible to predict future market
conditions and therefore determine if any further action may be required on any other classes of Commodity
Securities, the action that may be required includes, but is not limited to, temporarily not accepting applications
for Commodity Securities, temporarily suspending Commodity Securities from trading on Stock Exchanges or a
compulsory redemption of Commodity Securities. Other than the actions outlined above in respect of 3NIS and
3NIL, the Company has not initiated any of these further actions to date. Any such action will be undertaken in
accordance with the constitutive documents of the Commodity Securities. Furthermore, there are mechanisms
within the constitutive documents of the Commodity Securities that enable the Commodity Contract
Counterparties to request a compulsory redemption in certain circumstances as set out and explained within
the Prospectuses.
Future Developments
In April 2023 the Company created and launched a new class of Classic Commodity Securities, WisdomTree
California Carbon Securities, which will be available for trading from 19 April 2023 on the London Stock
Exchange and Borsa Italiana, and from 20 April 2023 on Deutsche Börse. WisdomTree California Carbon
Securities provide exposure to the performance of the Solactive California Carbon Rolling Futures ER Index.
The Board are not aware of any other developments that might have a significant effect on the operations of the
Company in subsequent financial periods not already disclosed in this report or the attached financial
statements.
Going Concern
The nature of the Company’s business dictates that the outstanding Commodity Securities may be redeemed
at any time by Authorised Participants and in certain circumstances by individual holders and also, in certain
circumstances, may be compulsorily redeemed by the Company. As the redemption of Commodity Securities
will always coincide with the cancellation of an equal amount of Commodity Contracts, liquidity risk is mitigated
through this process which is considered to minimize exposure to liquidity risk. All other expenses of the
Company are met by ManJer. The directors closely monitor the financial position and performance of ManJer,
its assets under management, and therefore its related revenue streams, in respect of fulfilling the obligations
under the services agreement. The net reported position on balance sheet, including in instances where a
deficit is reported, is not considered to impact the going concern position of the Company as this position
results solely due to the unrealised gains or losses on Commodity Contracts and Commodity Securities due to
the accounting measurement basis applied in accordance with IFRS. As Commodity Contracts are held to
support Commodity Securities, any deficit or surplus reported on unrealised positions would be reversed on a
subsequent redemption of the Commodity Securities and the related cancellation of Commodity Contracts. A
reported deficit is not considered indicative of any issues relating to solvency of the Company and the directors
are satisfied that any obligations arising in respect of the Commodity Securities can be managed in accordance
with the terms of the applicable prospectus. The directors consider the operations of the Company to be
ongoing, with a reasonable expectation that the Company has adequate resources to continue in operational
existence until 30 April 2024, and accordingly these financial statements have been prepared on the going
concern basis.
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Dividends
There were no dividends declared or paid in the year (2021: USD nil). It is the Company’s policy that dividends
will only be declared when the directors are of the opinion that there are sufficient distributable reserves.
Corporate Social Responsibility
Sustainability and corporate responsibility are embedded throughout the business of the WisdomTree group as
we believe this benefits shareholders and employees of the WisdomTree group, investors in WisdomTree’s
products as well as wider society.
Environmental, Social and Governance (“ESG”) investing is guided at the WisdomTree Inc, group level by an
ESG Steering Committee, which includes senior leaders from across the WisdomTree Inc, group business, and
which included several sub-committees focused on particular ESG considerations, such as improving data and
transparency into the ESG attributes of WisdomTree’s products. Particular ESG considerations relevant to the
Company’s products are overseen by the directors, leveraging the work undertaken by the ESG Steering
Committee. More information on WisdomTree’s corporate social responsibility strategy can be found on the
WisdomTree website (https://www.wisdomtree.eu/en-gb/wisdomtree-corporate-responsibility).
The Board acknowledges that climate change and its impact on the global economy is of increasing interest
and focus for stakeholders and that, where relevant, stakeholders will seek information from companies
regarding how climate change is expected to impact the operations of the business and how climate change
risk has been considered in the context of reported results.
In acknowledging the above, the Board has considered the Company’s exposure to climate change and
determined that due to the nature of the Company and its operations there are no directly observed impacts of
climate change on the business. As a result, the Board concluded that there is no basis on which to provide
extended information of analysis relating to climate change, including as part of the basis of accounting or
individual accounting policies adopted by the Company.
In the above determination, the Board has concluded specifically that climate change, including physical and
transition risks, does not have a material impact on the recognition and separate measurement considerations
of the assets and liabilities in these financial statements as at 31 December 2022.
This conclusion is based on the fact that assets are reported at fair value under IFRS, are short dated, and as
set out in note 12 are categorised as level 2 due to the use of observable, verifiable inputs, including use of
third party information sources within the agreed pricing formulae (set out in the Prospectus). The liabilities are
valued utilising listed market prices at the period end. These observable inputs and market prices will reflect
wider market sentiment, which inherently includes market perspectives relating to the impact of climate change.
The Board recognises that government and societal responses to climate change risks are still developing and
the future impact cannot be predicted. Future valuations of assets and liabilities may therefore differ as the
market responds to these changing impacts or assesses the impact of current requirements differently.
Directors’ Remuneration
No director has a service contract with the Company. The directors of the Company who are employees within
the WisdomTree, Inc group do not receive separate remuneration in their capacity as directors of the Company.
The directors of the Company who are employees of R&H Fund Services (Jersey) Limited (“R&H” or the
“Administrator”) do not receive separate remuneration in their capacity as directors of the Company, however
R&H receives a fee from ManJer which includes services in respect of the provision of directors who are
employees of R&H.
Prior to 30 June 2022, R&H specified the fees for the provision of Steven Ross and Christopher Foulds as
directors at £8,000 per annum. Following a restructuring of the fee methodology effective from 1 July 2022, the
fee for the provision of Steven Ross and Christopher Foulds as directors is not separately identified and
accordingly, no directors’ fees are separately disclosed.
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Employees
The Company does not have any employees. It is the Company’s policy to use the services of specialist
subcontractors or consultants as far as possible.
Auditor
The Independent Auditor is Ernst & Young LLP. A resolution to re-appoint Ernst & Young LLP will be proposed
at the next Board meeting of the directors.
Principal Risks and Uncertainties
The Commodity Securities provide investors with long or short exposure to the performance of the relevant
commodity index. Each Commodity Security is a debt instrument whose redemption price is linked to the
performance of the underlying commodity index. Each class of Commodity Security is issued under limited
recourse arrangements whereby the holders have recourse only to the relevant Commodity Contracts held to
support the Commodity Securities and not to the Commodity Contracts of any other class of Commodity
Security or the Company.
Any price movements in the value of the Commodity Contracts are wholly attributable to the holders of the
Commodity Securities, therefore the Company has no residual exposure to movements in the value of the
Commodity Contracts. From a commercial perspective the Company does not retain any net gains or losses or
net risk exposures, as (with the exception of the impact of management fees and licence allowance) the gains
or losses on the liability represented by the Commodity Securities are matched economically by corresponding
losses or gains attributable to the Commodity Contracts (see detail on page 3 regarding the accounting mis-
match).
Furthermore, the Company has an obligation to remunerate ManJer with the ManJer Fee, which results in the
Company recognising a result before fair value movements of nil for each period. As a result, the principal risks
and uncertainties to which the Company is exposed has not materially changed during the year ended 31
December 2022.
There is an inherent risk from the point of view of investors as the values of commodities, and thus the value of
the Commodity Securities, may vary widely due to, amongst other things, changing supply and demand for a
particular commodity, government and monetary policy or intervention, interest rate levels and global or
regional political, economic or financial events. The market price of Commodity Securities is (and will remain) a
function of supply and demand amongst investors wishing to buy and sell Commodity Securities and the bid or
offer spread that the market makers are willing to quote.
Movements in the value of the underlying Commodity Contracts, and thus the value of the Commodity
Securities, may vary widely which could have an impact on the demand for the Commodity Securities issued by
the Company. These movements are shown in notes 7 and 8.
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Principal Risks and Uncertainties (continued)
The contractual value (at NAV) of the Commodity Securities as at 31 December, and the movement over the period amounted to:
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Principal Risks and Uncertainties (continued)
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Principal Risks and Uncertainties (continued)
Whilst Micro Securities are admitted to trading on the Stock Exchanges, it is not anticipated that any active secondary market will develop in any of the Micro
Securities. Furthermore, on an ongoing basis the Micro Securities themselves are not traded, with Security Holders receiving the Commodity Securities in
transactions. As a result, Micro Securities which in aggregate, had a fair value at 31 December 2022 of $563 (2021: $471) have been excluded from the table above.
In addition, whilst the table above also reflects the NAV at 31 December 2021 and 31 December 2022, together with the movement, this does not reflect the
recommended holding period for Commodity Securities, which in some cases is one day. Further information on the contractual value (at NAV) of the Commodity
Securities on a daily basis can be found on the WisdomTree website (https://www.wisdomtree.eu/en-gb/products).
Additional information on other financial and operational risks and uncertainties faced by the Company, including further details surrounding the value of Commodity
Securities and the Commodity Contracts are disclosed in note 12 of these financial statements.
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Corporate Governance
There is no standard code of corporate governance in Jersey. The operations, as previously described in the
Directors’ Report, are such that the directors have determined that the Company is not required to apply, and
has elected not to voluntarily apply, the UK Corporate Governance Code.
As the Board is small, there is no nomination committee and appointments of new directors are considered by
the Board as a whole. The Board does not consider it appropriate that directors should be appointed for a
specific term. Furthermore, the structure of the Board is such that it is considered unnecessary to identify a
senior non-executive director.
The constitution of the Board is disclosed on page 1. The Board meets regularly as required by the
operations of the Company, but at least quarterly to review the overall business of the Company and to
consider matters specifically reserved for its review.
Internal Control
During the year the Company did not have any employees or subsidiaries, and there is no intention that this
will change. The Company, being a special purpose company established for the purpose of issuing
Commodity Securities, has not undertaken any business, save for issuing and redeeming Commodity
Securities, entering into the required documents and performing the obligations and exercising its rights in
relation thereto, since its incorporation. The Company does not intend to undertake any business other than
issuing and redeeming Commodity Securities and performing the obligations and exercising its rights in
relation thereto.
The Company is dependent upon ManJer to provide management and administration services to it. ManJer is
licensed under the Financial Services (Jersey) Law 1998 to conduct classes U and Z of Fund Services
Business. ManJer outsources the administration services in respect of the Company to the Administrator.
Documented contractual arrangements are in place with the Administrator which define the areas where the
authority is delegated to them. The performance of the Manager and Administrator are reviewed on an
ongoing basis by the Board, through their review of periodic reports.
ManJer provides management and other services to both the Company and other companies issuing
exchange-traded products.
The Board, having reviewed the effectiveness of the internal control systems of the Manager and the
Administrator, does not consider that there is a need for the Company to establish its own internal audit
function.
Audit Committee
The Board has not established a separate audit committee; instead the Board meets to consider the financial
reporting by the Company, the internal controls, and relations with the external auditor. In addition, the Board
reviews the independence and objectivity of the auditor.
Christopher Foulds
Director
Jersey
19 April 2023
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The directors are responsible for preparing the financial statements in accordance with applicable law and
regulations.
Company law requires the directors to prepare financial statements for each financial year. Under that law
they have elected to prepare the financial statements in accordance with International Financial Reporting
Standards (“IFRSs”) as issued by the International Accounting Standards Board (“IASB”) and applicable law.
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 Company and of the profit or loss of the Company for that
period. In preparing these 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;
state whether applicable accounting standards have been followed, subject to any material departures
disclosed and explained in the financial statements;
assess the Company’s ability to continue as a going concern, disclosing, as applicable, matters
related to going concern; and
use the going concern basis of accounting unless they either intend to liquidate the Company or to
cease operations, or have no realistic alternative but to do so.
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 enable them to ensure that the financial statements comply with the Companies (Jersey) Law
1991. They are responsible for such internal control as they determine is necessary to enable the preparation
of financial statements that are free from material misstatement, whether due to fraud or error, and have
general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the
Company and to prevent and detect fraud and other irregularities.
The directors are responsible for the maintenance and integrity of the corporate and financial information
included on the Company’s website. Legislation in Jersey governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions.
With regard to Directive 2004/109/EC, amended by Directive 2013/50/EU (collectively the Transparency
Directive), the Central Bank (Investment Market Conduct) Rules of the Central Bank of Ireland and the
Disclosure Guidance and Transparency Rules of the Financial Conduct Authority, the directors confirm that to
the best of their knowledge that:
the financial statements for the year ended 31 December 2022 give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company as required by law and in accordance
with IFRS as issued by the IASB; and
the Directors’ Report gives a fair view of the development and performance of the Company’s
business, including financial position and the important events that have occurred during the year, and
their impact on these financial statements, together with a description of the principal risks and
uncertainties they face.
By order of the Board
Christopher Foulds
Director
Jersey
19 April 2023
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INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF WISDOMTREE COMMODITY SECURITIES LIMITED
Opinion
We have audited the financial statements of WisdomTree Commodity Securities Limited (the “company”)
for the year ended 31 December 2022 which comprise the Statement of Profit or Loss and Other
Comprehensive Income, the Statement of Financial Position, the Statement of Cash Flows, the Statement
of Changes in Equity and the related notes 1 to 15, including a summary of significant accounting policies.
The financial reporting framework that has been applied in their preparation is applicable law and
International Financial Reporting Standards as issued by the International Accounting Standards Board
(“IFRS”).
In our opinion, the financial statements:
►
give a true and fair view of the state of the company’s affairs as at 31 December 2022 and of its
profit for the year then ended;
►
have been properly prepared in accordance with IFRS; and
►
have been properly prepared in accordance with the requirements of the Companies (Jersey)
Law 1991.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and
applicable law. Our responsibilities under those standards are further described in the Auditor’s
responsibilities for the audit of the financial statements section of our report. We are independent of
the company in accordance with the ethical requirements that are relevant to our audit of the financial
statements, including the UK FRC’s Ethical Standard as applied to listed public interest entities, and
we have fulfilled our other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis
of accounting in the preparation of the financial statements is appropriate. Our evaluation of the directors’
assessment of the company’s ability to continue to adopt the going concern basis of accounting included:
►
We obtained an understanding of management’s rationale for using the going concern basis
of accounting and confirmed our understanding of management’s Going Concern assessment
process including the process they adopted to capture all key factors in their assessment;
►
We obtained management’s board approved going concern assessment covering the period of
assessment from the date of signing to 30 April 2024. Management’s assessment has focussed
on a combination of;
o
Assessing the ongoing viability of the company through continued involvement of
its Commodity Transaction Counterparty and Authorised Participants;
o
Assessing the ongoing ability of WisdomTree Management Jersey Limited (“ManJer”) to
continue to meet its obligations as manager and pay all expenses of the Company. This
includes consideration of the assets under management of all managed issuer entities
(“Issuer Platform”) which includes this Company. In assessing this ability we considered
the fixed and variable operating costs that could be supported under varying levels of
total assets under management for the Issuer Platform.
►
Using our understanding of the business, we evaluated whether the considerations and
method adopted by management in assessing going concern was appropriate.
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INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF WISDOMTREE COMMODITY SECURITIES LIMITED (continued)
►
We performed reverse stress testing on the forecasts to understand how severe the downside
scenarios would have to be, and in particular the reduction in platform assets under
management, to result in the platform generating insufficient management fees to cover
operating costs. We observed significant headroom in management fee income, at current
Assets Under Management (“AUM”) levels, in excess of fixed costs which supports
management’s assumption that the Issuer Platform is able to absorb heightened levels of
volatility in AUM.
►
We considered whether management’s disclosures, in the Annual Report and financial
statements, sufficiently and appropriately discloses information required in respect of the going
concern assumption applied through consideration of relevant disclosure standards.
Based on the work we have performed, we have not identified any material uncertainties relating to events
or conditions that, individually or collectively, may cast significant doubt on the company’s ability to
continue as a going concern over the period to 30 April 2024.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in
the relevant sections of this report. However, because not all future events or conditions can be predicted,
this statement is not a guarantee as to the company’s ability to continue as a going concern.
Overview of our audit approach
►
►
An overview of the scope of our audit
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality
determine our audit scope for the company. This enables us to form an opinion on the financial statements.
We take into account size, risk profile, the organisation of the company and effectiveness of controls,
changes in the business environment and the potential impact of climate change when assessing the level
of work to be performed. All audit work was performed directly by the audit engagement team.
Changes from the prior year There were no scoping changes compared to the prior year.
Climate change
There has been increasing interest from stakeholders as to how climate change will impact companies. The
company has determined that there are no directly observed impacts of climate change on the business
due to the nature of the company and its operations. This is explained on page 6 in the corporate social
responsibility section, which form part of the “Other information,” rather than the audited financial
statements. Our procedures on these disclosures therefore consisted solely of considering whether they
are materially inconsistent with the financial statements or our knowledge obtained in the course of the
audit or otherwise appear to be materially misstated.
Our audit effort in considering climate change was focused on evaluating management’s assessment of
the impact of climate risk, physical and transition, the adequacy of the company’s disclosures in the
financial statements as set out in note 2 and conclusion that there was no further impact of climate change
to be taken into account as the material assets and liabilities are valued based on market pricing as
required by IFRS.
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INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF WISDOMTREE COMMODITY SECURITIES LIMITED (continued)
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our
audit of the financial statements of the current period and include the most significant assessed risks of
material misstatement (whether or not due to fraud) that we identified. These matters included those
which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and
directing the efforts of the engagement team. These matters were addressed in the context of our audit of
the financial statements as a whole, and in our opinion thereon, and we do not provide a separate opinion
on these matters.
Valuation of Financial Assets at
Our response to the risk
There were no matters identified
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INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF WISDOMTREE COMMODITY SECURITIES LIMITED (continued)
The risk has remained consistent
Valuation of Financial Liabilities
Our response to the risk
There were no matters identified
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INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF WISDOMTREE COMMODITY SECURITIES LIMITED (continued)
We apply the concept of materiality in planning and performing the audit, in evaluating the effect of
identified misstatements on the audit and in forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be
expected to influence the economic decisions of the users of the financial statements. Materiality provides
a basis for determining the nature and extent of our audit procedures.
We determined materiality for the company to be US$55.50 million (2021: US$50.70 million), which is 1%
(2021: 1%) of Total Assets. We believe that Total Assets provides us with an appropriate basis for audit
materiality as Total Assets reflects the relevant exposure of holders of issued securities to the
underlying asset base.
There has been no change in the basis of materiality used compared to the prior year.
Performance materiality
The application of materiality at the individual account or balance level. It is set at an amount to reduce to
an appropriately low level the probability that the aggregate of uncorrected and undetected
misstatements exceeds materiality.
On the basis of our risk assessments, together with our assessment of the company’s overall control
environment, our judgement was that performance materiality was 50% (2021: 75%) of our
materiality, namely US$27.75m (2021: US$38.03m). We have set performance materiality at this
percentage in response to a number of errors in the financial statement close process. We had set
performance materiality at 75% of our planning materiality in the prior year based on our prior
experience of not identifying errors or significant audit differences.
Reporting threshold
An amount below which identified misstatements are considered as being clearly trivial.
We agreed with the Board that we would report to them all uncorrected audit differences in excess of
US$2.78m (2021: US$2.54m), which is set at 5% of materiality, as well as differences below that
threshold that, in our view, warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative measures of
materiality discussed above and in light of other relevant qualitative considerations in forming our
opinion.
Other information
The other information comprises the information included in the annual report set out on pages 1 to 12,
other than the financial statements and our auditor’s report thereon. The directors are responsible for the
other information contained within the annual report.
Our opinion on the financial statements does not cover the other information and, except to the
extent otherwise explicitly stated in this report, we do not express any form of assurance conclusion
thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information
is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit
or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent
material misstatements, we are required to determine whether this gives rise to a material misstatement in
the financial statements themselves. If, based on the work we have performed, we conclude that there is a
material misstatement of the other information, we are required to report that fact.
We have nothing to report in this regard.
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INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF WISDOMTREE COMMODITY SECURITIES LIMITED (continued)
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in relation to which the Companies (Jersey)
Law 1991 requires us to report to you if, in our opinion:
►
proper accounting records have not been kept by the company, or proper returns adequate for our
audit have not been received from branches not visited by us; or
►
the financial statements are not in agreement with the company’s accounting records and returns; or
►
we have not received all the information and explanations we require for our audit
Responsibilities of directors
As explained more fully in the Statement of Directors’ Responsibilities set out on page 12, the directors
are responsible for the preparation of the financial statements and for being satisfied that they give a true
and fair view, and for such internal control as the directors determine is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the company’s ability
to continue as a going concern, disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless the directors either intend to liquidate the company or to
cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are
free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes
our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of
these financial statements.
Explanation as to what extent the audit was considered capable of detecting irregularities,
including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design
procedures in line with our responsibilities, outlined above, to detect irregularities, including fraud. The
risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one
resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional
misrepresentations, or through collusion. The extent to which our procedures are capable of detecting
irregularities, including fraud is detailed below.
However, the primary responsibility for the prevention and detection of fraud rests with both those
charged with governance of the company and management.
►
We obtained an understanding of the legal and regulatory frameworks that are applicable to the
company and determined that the most significant are those that relate to the reporting
framework, comprising IFRS and the Companies (Jersey) Law 1991. In addition, we concluded
that there are certain significant laws and regulations that may have an effect on the presentation
and disclosure of the financial statements being the applicable Listing Rules of the Central Bank
of Ireland (Investment Market Conduct) and UK Listing Authority Rules;
►
We understood how WisdomTree Commodity Securities Limited is complying with those
frameworks by making enquiries of the directors and key management of the administrative
service provider. We corroborated our enquiries through our review of minutes of Board meetings,
papers provided to the board and correspondence received from regulatory bodies and noted no
contradictory evidence;
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INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF WISDOMTREE COMMODITY SECURITIES LIMITED (continued)
►
We assessed the susceptibility of the company’s financial statements to material misstatement,
including how fraud might occur by understanding the investment objectives of the Company and
discussing with management to understand where reporting was considered susceptible to fraud.
Where this risk was considered to be higher, we performed audit procedures in response to the
identified fraud risk. These procedures included testing of transactions to supporting documentation,
testing of specific accounting journal entries and focussed testing, including that referred to in the
key audit matters section above. These procedures were designed to provide reasonable assurance
that the financial statements were free from fraud or error;
►
Based on this understanding we designed our audit procedures to identify non-compliance with such
laws and regulations. Our procedures involved reading board minutes to identify any non-compliance
with laws and regulations, a review of any associated reporting submitted to the board on compliance
with laws and regulations and enquiries of members of management of the appointed administrative
service provider.
►
As the Company operates in the asset management industry the Audit Partner assessed the
experience of the engagement team and concluded that the team had the appropriate competence
and capabilities.
A further description of our responsibilities for the audit of the financial statements is located on the
Financial Reporting Council’s website at https://www.frc.org.uk/auditorsresponsibilities. This description
forms part of our auditor’s report.
Other matters we are required to address
►
Following the recommendation from those charged with governance, we were appointed by the company
on 3 December 2019 to audit the financial statements for the year ending 31 December 2019 and
subsequent financial periods.
The period of total uninterrupted engagement including previous renewals and reappointments is 4
years, covering the years ending 31 December 2019 to 31 December 2022.
►
The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the company
and we remain independent of the company in conducting the audit.
►
The audit opinion is consistent with the additional report to those charged with governance.
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Article 113A of the
Companies (Jersey) Law 1991. Our audit work has been undertaken so that we might state to the company’s
members those matters we are required to state to them in an auditor’s report and for no other purpose. To
the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the
company and the company’s members as a body, for our audit work, for this report, or for the opinions we
have formed.
Christopher David Gordon Barry, FCA
for and on behalf of Ernst & Young LLP
Jersey, Channel Islands
Date 19 April 2023
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The directors consider the Company’s activities as continuing.
1 A non-statutory and non-GAAP Statement of Profit or Loss and Other Comprehensive Income reflecting adjustments
representing the movement in the difference between the value of the Commodity Contracts and the price of Commodity
Securities is set out in note 15.
2 There are no items of Other Comprehensive Income, therefore the Profit/(Loss) for the Year also represented the Total
Comprehensive Income for the Year.
The notes on pages 24 to 42 form part of these financial statements
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The assets and liabilities in the above Statement of Financial Position are presented in order of liquidity from
most to least liquid.
The financial statements on pages 20 to 42 were approved and authorised for issue by the board of directors
and signed on its behalf on 19 April 2023.
Christopher Foulds
Director
The notes on pages 24 to 42 form part of these financial statements
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Commodity Securities are issued through a direct transfer of cash from the Authorised Participants to the
Commodity Contract Counterparties or redeemed by the direct transfer of cash by the Commodity Contract
Counterparties to the Authorised Participants. As such the Company is not a party to any cash transactions.
The creations and redemptions of Commodity Securities and creations and cancellations of Commodity
Contracts, which are non-cash transactions for the Company, are disclosed in notes 7 and 8 respectively, in
the reconciliation of opening to closing Commodity Securities and Commodity Contracts.
The Company has entered into a service agreement with WisdomTree Management Jersey Limited (“ManJer”
or the “Manager”), whereby ManJer is responsible for supplying or procuring the supply of all management
and administration services required by the Company (including marketing), as well as the payment of costs
relating to the listing and issue of Commodity Securities. In return for these services, the Company has an
obligation to remunerate ManJer with an amount equal to the aggregate of the management fee, licence
allowance and the creation and redemption fees (the “ManJer Fee”). The management fee and licence
allowance are transferred directly to ManJer by the Commodity Contract Counterparties under the terms of
the Commodity Contracts. Prior to 30 June 2022 ManJer received creation and redemption fees directly from
the Authorised Participants. After 30 June 2022 the creation and redemption fees are included and settled
between the Authorised Participants and the Commodity Contract Counterparties as part of each creation or
redemption, being transferred directly to ManJer by the Commodity Contract Counterparties on a monthly
basis. Accordingly, there are no cash flows through the Company.
The notes on pages 24 to 42 form part of these financial statements
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3 A non-statutory and non-GAAP Statement of Changes in Equity reflecting adjustments representing the difference between the value of Commodity Contracts and the price of
Commodity Securities is set out in note 15.
The notes on pages 24 to 42 form part of these financial statements
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1.
General Information
WisdomTree Commodity Securities Limited (the “Company”) is a company incorporated and domiciled in
Jersey. The address of the registered office is Ordnance House, 31 Pier Road, St. Helier, Jersey, JE4 8PW.
The Company’s principal activity is the issue and listing of commodity securities (“Commodity Securities”). The
Company’s portfolio of Commodity Securities includes classic, longer dated, short and leveraged Commodity
Securities. Commodity Securities are undated secured limited recourse financial instruments designed to track
the price of commodity futures, and give investors an exposure similar to that which could be achieved by
managing a fully cash-collateralised position in near-term futures contracts, less applicable fees. However,
unlike managing a futures position, Commodity Securities involve no need to roll from one futures contract to
another, no margin calls, and no other brokerage or other costs in holding or rolling futures contracts (although
security holders incur costs in holding Commodity Securities). No trading or management of futures contracts is
required by the Company. Commodity Securities allow investors to buy and sell their interest through the
trading of a security on the London Stock Exchange and any other exchange to which that security may be
admitted to trading from time to time.
Commodity Securities are backed by commodity contracts (“Commodity Contracts”) with terms corresponding
to the terms of Commodity Securities. Each class of Commodity Security is issued under limited recourse
arrangements whereby the holders have recourse only to the relevant Commodity Contracts held to support the
Commodity Securities and not to the Commodity Contracts of any other class of Commodity Security or to the
Company. The Company does not make gains from trading in the underlying Commodity Contracts. As a
result, (and with the exception of the impact of management fees and licence allowance), from a commercial
perspective gains and losses in respect of Commodity Contracts will always be offset by a corresponding loss
or gain on the Commodity Securities and therefore commercially the Company does not retain any net gains or
losses or net risk exposures. However, the difference in valuation between Commodity Contracts and
Commodity Securities creates a mis-match between values reported within these financial statements. This
difference in valuation would be reversed on a subsequent redemption of the Commodity Securities and
cancellation of the corresponding Commodity Contracts. Further details are disclosed within the Accounting
Policies and in note 15, with additional information regarding the risks of the Company disclosed in note 12.
Furthermore, the Company presents an adjusted Statement of Profit or Loss and Other Comprehensive Income
and an adjusted Statement of Changes in Equity in note 15 of the financial statements to reflect the economic
results of the Company through the reversal of the difference in valuation between Commodity Contracts and
Commodity Securities given the gain or loss would be reversed on a subsequent redemption of the Commodity
Securities and transfer of the corresponding Commodity Contracts, and therefore will not be realised.
Exchange-traded products are not typically actively managed, are significantly lower in cost when compared to
actively managed mutual funds and are easily accessible to investors. No trading or management of futures
contracts is required of the Company because the Company has entered into arrangements to acquire an
equivalent asset exposure represented by the Commodity Securities from third parties which fully hedges the
exposure of the Company.
The Company is entitled to:
(1)
a management fee and a licence allowance which are calculated by applying a fixed percentage to the
Contractual Value of Commodity Securities in issue on a daily basis (the “Management Fee and
Licence Allowance”); and
(2)
apply creation and redemption fees on the issue and redemption of the Commodity Securities.
No creation or redemption fees are payable to the Company when investors trade in the Commodity Securities
on a listed market such as the London Stock Exchange.
The Company has entered into a service agreement with WisdomTree Management Jersey Limited (“ManJer”
or the “Manager”), whereby ManJer is responsible for supplying or procuring the supply of all management and
administration services required by the Company (including marketing), as well as the payment of costs relating
to the listing and issuance of Commodity Securities. In return for these services the Company has an
obligation to remunerate ManJer with an amount equal to the management fee, licence allowance and the
creation and redemption fees earned (the “ManJer Fee”). As a result, the Company recognises a result before
fair value movements of nil for each period.
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2.
Accounting Policies
The main accounting policies of the Company are described below.
Basis of Preparation
The financial statements have been prepared in accordance with International Financial Reporting Standards
(“IFRSs”) as issued by the International Accounting Standards Board (“IASB”), and interpretations issued by the
International Financial Reporting Interpretations Committee of the IASB. The financial statements have been
prepared under the historical cost convention, as modified by the revaluation of certain financial assets and
financial liabilities held at fair value through profit or loss.
The Board has concluded specifically that climate change, including physical and transition risks, does not have
a material impact on the recognition and separate measurement considerations of the assets and liabilities in
these financial statements as at 31 December 2022.
This conclusion is based on the fact that assets are reported at fair value under IFRS, are short dated, and as
set out in note 12 are categorised as level 2 due to the use of observable, verifiable inputs, including use of
third party information sources within the agreed pricing formulae (set out in the Prospectus). The liabilities are
valued utilising listed market prices at the period end. These observable inputs and market prices will reflect
wider market sentiment, which inherently includes market perspectives relating to the impact of climate change.
Critical Accounting Estimates and Judgements
The presentation of financial statements in conformity with IFRSs requires the use of certain critical accounting
estimates. It also requires management to exercise its judgement in the process of applying the Company’s
accounting policies. The Company makes estimates and assumptions that affect the reported amounts of
assets and liabilities. Estimates are continually evaluated and based on historical experience and other factors,
including expectations of future events that are believed to be reasonable under the circumstances.
Significant Judgements
The key accounting judgement required to prepare these financial statements is in respect of the presentation
of non-statutory and non-GAAP adjustments to the Statement of Profit or Loss and Other Comprehensive
Income and the Statement of Changes in Equity, as disclosed in note 15.
Significant Estimates
The directors do not consider that any significant estimates have been applied in the preparation of these
financial statements.
Going Concern
The nature of the Company’s business dictates that the outstanding Commodity Securities may be redeemed
at any time by Authorised Participants and in certain circumstances by individual holders and also, in certain
circumstances, may be compulsorily redeemed by the Company. As the redemption of Commodity Securities
will always coincide with the cancellation of an equal amount of Commodity Contracts, liquidity risk is mitigated
through this process which is considered to minimize exposure to liquidity risk. All other expenses of the
Company are met by ManJer. The directors closely monitor the financial position and performance of ManJer,
its assets under management, and therefore its related revenue streams, in respect of fulfilling the obligations
under the services agreement. The net reported position on balance sheet, including in instances where a
deficit is reported, is not considered to impact the going concern position of the Company as this position
results solely due to the unrealised gains or losses on Commodity Contracts and Commodity Securities due to
the accounting measurement basis applied in accordance with IFRS. As Commodity Contracts are held to
support Commodity Securities, any deficit or surplus reported on unrealised positions would be reversed on a
subsequent redemption of the Commodity Securities and the related cancellation of Commodity Contracts. A
reported deficit is not considered indicative of any issues relating to solvency of the Company and the directors
are satisfied that any obligations arising in respect of the Commodity Securities can be managed in accordance
with the terms of the applicable prospectus. The directors consider the operations of the Company to be
ongoing, with a reasonable expectation that the Company has adequate resources to continue in operational
existence until 30 April 2024, and accordingly these financial statements have been prepared on the going
concern basis.
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2.
Accounting Policies (continued)
Accounting Standards
(a)
Standards, amendments and interpretations adopted in the year:
The following standards that have been revised, issued and became effective but are not considered
applicable to the Company:
Amendments to IFRS 3 Business Combinations
Amendments to IFRS 4 Insurance Contracts
Amendments to IFRS 16 Leases
Amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets
Annual Improvements to IFRS
There were no other new standards, amendments and interpretations adopted in the current year that
resulted in a significant effect on these financial statements.
(b)
New and revised IFRSs in issue but not yet effective:
The Company has not applied the following new and revised IFRSs that have been issued but are not yet
effective:
IFRS 17 Insurance Contracts (effective for annual periods beginning on or after 1 January 2023)
Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (effective for
annual periods beginning on or after 1 January 2023)
Amendments to IAS 12 Deferred Tax (effective for annual periods beginning on or after 1 January
2023)
Amendments to IAS 1 Presentation of Financial Statements (effective for annual periods beginning on
or after 1 January 2024)
Amendments to IFRS 16 Leases (effective for annual periods beginning on or after 1 January 2024)
The directors do not expect the adoption of the above standards, amendments and interpretations that are
in issue but not yet effective will have a material impact on the financial statements of the Company in
future periods.
Commodity Securities and Commodity Contracts
i)
Issue and Redemption
Each time a Commodity Security is issued or redeemed by the Company a corresponding number and
value of Commodity Contracts are created or cancelled with Citigroup Global Markets Limited
(“Citigroup”) and Merrill Lynch International (“Merrill Lynch”) (collectively the “Commodity Contract
Counterparties”). The Commodity Contracts represent the financial assets of the Company and the
Commodity Securities give rise to the financial liabilities. Upon initial recognition, the fair value is
recorded using the price calculated based on the formula set out in the Prospectus, referred to as the
“Contractual Value” (see below).
Financial assets and liabilities are recognised and de-recognised on the transaction (trade) date.
ii)
Classification at fair value through Profit or Loss
Each Commodity Security and Commodity Contract comprises a financial instrument whose redemption
or cancellation price is linked to the performance of the relevant commodity index adjusted by the
applicable fees and expenses.
The Commodity Contracts held are classified as financial assets at fair value through profit or loss under
IFRS 9 and the Commodity Securities are classified as financial liabilities measured at fair value through
profit or loss under IFRS 9 due to an embedded derivative. This also significantly reduces a
measurement or recognition inconsistency that would otherwise arise from measuring assets or liabilities,
or recognising the gains and losses on them, on different bases.
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2.
Accounting Policies (continued)
Commodity Securities and Commodity Contracts (continued)
iii)
Pricing
The Commodity Contracts are priced by reference to the value of the commodity indices calculated and
published by Bloomberg L.P. or Bloomberg Finance L.P. (together “Bloomberg”) and a multiplier
calculated by the Company and agreed with the Commodity Contract Counterparties. The multiplier
takes into account the daily accrual of the Management Fee and Licence Allowance and swap spread as
well as the capital adjustment component of the Commodity Security, and is the same across all
Commodity Securities of the same type (i.e. all classic Commodity Securities use the same multiplier).
This price (the Contractual Value calculated based on the formula set out in the Prospectus) is
considered to be the fair value of the Commodity Contracts.
IFRS 13 requires the Company to identify the principal market and to utilise the available price within that
principal market. The directors consider the stock exchanges where the Commodity Securities are listed
to be the principal market and as a result the fair value of the Commodity Securities is the on-exchange
price as quoted on the stock exchange demonstrating active trading with the highest trading volume on
each day that the price is obtained. The Commodity Securities are priced using the latest traded mid-
market price on (or before) the Statement of Financial Position date.
Consequently, a difference arises between the value of Commodity Contracts (held to support the
Commodity Securities) and Commodity Securities (at market value) presented in the Statement of
Financial Position. This difference is reversed on a subsequent redemption of the Commodity Securities
and cancellation of the corresponding Commodity Contracts.
Commodity Contracts and Securities Awaiting Settlement
The issue and redemption of Commodity Securities, and the creation or cancellation of Commodity Contracts,
is accounted for on the transaction date. The transaction will not settle until two days after the transaction date.
Where transactions are awaiting settlement at the year end, the value of the Commodity Contracts and the
Commodity Securities due to be settled is separately disclosed within the relevant assets and liabilities on the
Statement of Financial Position. The fair value of these receivables and payables is considered equivalent to
their carrying value.
Other Financial Assets and Liabilities
Other financial assets and liabilities are non-derivative financial assets and liabilities including trade and other
receivables and trade and other payables with a fixed payment amount and are not quoted in an active market.
After initial measurement the other financial assets and liabilities are subsequently measured at amortised cost
using the effective interest method less any allowance for expected credit losses (in respect of financial assets
only). The effective interest method is a method of calculating the amortised cost of an instrument and of
allocating interest over the relevant period. The effective interest rate is the rate that exactly discounts
estimated future cash flows (including all fees paid or received that form an integral part of the effective interest
rate, transaction costs and other premiums or discounts) through the expected life of the instrument, or, where
appropriate, a shorter period, to the net carrying amount on initial recognition. Impairment losses, including
reversals of impairment losses and impairment gains, are recorded through profit or loss.
Reserves
A revaluation reserve and a retained earnings reserve are maintained within equity. All profit or loss is taken to
the retained earnings reserve at the end of the accounting period to which it relates and the gain or loss relating
to the mis-match of accounting values is transferred to the revaluation reserve, which the directors have
deemed to be non-distributable, as the balance relates to unrealised gains and losses on Commodity Contracts
(held to support the Commodity Securities) and Commodity Securities, which will be reversed on a subsequent
redemption of the Commodity Securities and the related cancellation of Commodity Contracts and will therefore
not be realised.
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2.
Accounting Policies (continued)
Income
The Company derives its income over time (in respect of management fees), and at a point in time (in respect
of creation and redemption fees) as follows:
i)
Management Fees and Licence Allowance
Management Fees and Licence Allowance are calculated by applying a fixed percentage to the
Contractual Value of Commodity Securities in issue in accordance with the terms of the securities issued:
classic and longer dated Commodity Securities have a management fee rate of 0.49% per annum,
with the exception of WisdomTree Carbon Securities which has management fee rate of 0.35% per
annum;
short and leveraged Commodity Securities have a management fee rate of 0.98% per annum; and
all Commodity Securities are subject to the licence allowance of 0.05% per annum.
The Management Fees and Licence Allowance are accrued and recognised on a daily basis and are
invoiced on a monthly basis and settled directly between ManJer and the Commodity Contract
Counterparties.
ii)
Creation and Redemption Fees
Fees for the issue and redemption of Commodity Securities are recognised at the fair value of the
consideration expected to be received, on the date on which the transaction becomes legally binding.
Prior to 30 June 2022, accrued creation and redemption fees were invoiced on a quarterly basis and
settled directly between ManJer and the relevant Authorised Participants. After 30 June 2022 the creation
and redemption fees are included as part of each creation or redemption and settled between the
Authorised Participants and the Commodity Contract Counterparties, and transferred directly to ManJer by
the Commodity Contract Counterparties on a monthly basis.
Foreign Currency
The financial statements of the Company are presented in the currency in which the majority of the Commodity
Securities issued by the Company are denominated (its functional currency). For the purpose of the financial
statements, the results and financial position of the Company are expressed in United States Dollars, which is
the functional currency of the Company, and the presentational currency of the financial statements.
Transactions in foreign currencies are initially recorded at the spot rate at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies at the year-end date are translated at rates ruling at that
date. Prior to 30 June 2022, creation and redemption fees were translated at the average rate for the month in
which they are incurred.The resulting differences are accounted for through profit or loss.
Segmental Reporting
A segment is a distinguishable component of the Company that is engaged either in providing products or
services (business segment), or in providing products and services within a particular economic environment
(geographical segment), which is subject to risks and rewards that are different from those of other segments.
IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the
Company that are regularly reviewed by the Chief Operating Decision Maker (“CODM”) in order to allocate
resources to the segments and to assess their performance. The CODM has been determined as the board of
directors.
Whilst the Company has a number of different Commodity Securities in issue, the financial information
reviewed by the CODM is not segregated by those different Commodity Securities, but is segregated between
classic and longer dated Commodity Securities and short and leveraged Commodity Securities and therefore
the board of directors have concluded that these two components meet the criteria of operating segments.
Furthermore marketing of the Commodity Securities is undertaken on a centralised basis and the terms of the
Commodity Securities of any class rank pari passu in all respects irrespective of stock exchange listing. In
addition, the Company has no single major customer from which greater than 10% of income is generated.
Therefore the Company discloses its results on an equivalent form on its operations for each of the Company’s
business segments only, in note 5.
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3.
Result Before Fair Value Movements
Result Before Fair Value Movements for the year comprised:
Audit Fees for the year of GBP 43,079 will be met by ManJer (2021: GBP 39,300).
4.
Taxation
The Company is subject to Jersey Income Tax. During the year the Jersey Income Tax rate applicable to the
Company is zero percent (2021: zero percent).
5.
Segmental Reporting
The Company has two operating segments; classic & longer dated and short & leveraged Commodity
Securities in issue. The Company earns income from each of these sources.
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5.
Segmental Reporting (continued)
Additional information relating to the assets and liabilities associated with these Commodity Securities is
disclosed in notes 7 and 8.
6.
Trade and Other Receivables
The fair value of these receivables is equal to the carrying value. The Trade and Other Receivables are due to
be recovered within 12 months of the year end.
7.
Commodity Contracts
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7.
Commodity Contracts (continued)
As at 31 December 2022, there were certain Commodity Contracts awaiting settlement in respect of the
creation or redemption of Securities with transaction dates before the year end and settlement dates in the
following year:
The amount receivable on Commodity Contracts awaiting settlement is USD 23,143,956 (2021: USD
37,414,879).
The amount payable on Commodity Contracts awaiting settlement is USD 15,924,251 (2021: USD
5,922,436).
The below reconciliation of changes in the Commodity Contracts includes only non-cash changes.
8.
Commodity Securities
Whilst the Commodity Securities are quoted on the open market, the Company’s ultimate liability relates to its
contractual obligations to issue and redeem Commodity Securities at set prices on each trading day. These
prices are based on agreed formulae, and are equal to the published net asset values (“NAV”) of each class of
Commodity Security. Therefore, the actual contractual issue and redemption of Commodity Securities occur at
a price that corresponds to the fair value of the Commodity Contracts. As a result, the Company has no net
exposure to gains or losses on the Commodity Securities and Commodity Contracts.
The Company measures the Commodity Securities at their fair value in accordance with IFRS 13 rather than at
the Contractual Value (as described in the Prospectus). The fair value is the price quoted on stock exchanges
or other markets where the Commodity Securities are listed or traded.
The fair values and changes thereof during the year based on prices available on the open market as
recognised in the financial statements are:
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8.
Commodity Securities (continued)
The Contractual Values and changes thereof during the year based on the contractual settlement values are:
The gain or loss on the difference between the value of the Commodity Contracts and the fair value of
Commodity Securities would be reversed on a subsequent redemption of the Commodity Securities and
cancellation of the corresponding Commodity Contracts. Refer to note 15 for the non-statutory and non-GAAP
adjustments which reflect the results of this reversal.
As at 31 December 2022, there were certain Commodity Securities awaiting settlement in respect of creations
or redemptions with transaction dates before the year end and settlement dates in the following year:
The amount receivable on Commodity Securities awaiting settlement is USD 15,924,251 (2021: USD
5,922,436).
The amount payable on Commodity Securities awaiting settlement is USD 23,143,956 (2021: USD
37,414,879).
The below reconciliation of changes in the Commodity Securities, being liabilities arising from financing
activities, includes only non-cash changes.
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9.
Trade and Other Payables
The fair value of these payables is equal to the carrying value. The ManJer Fee Payable is due to be settled
within 12 months of the year end.
10.
Stated Capital
The Company can issue an unlimited capital of nil par value shares in accordance with its Memorandum of
Association.
All Shares issued by the Company carry one vote per Share without restriction and carry the right to dividends.
All Shares are held by WisdomTree Holdings Jersey Limited (“HoldCo”).
11.
Related Party Disclosures
Entities and individuals which have significant influence over the Company, either through ownership or by
virtue of being a director of the Company are considered to be related parties. In addition, entities with
common ownership to the Company and entities with common directors are also considered to be related
parties.
Fees charged by ManJer during the year:
The following balances were due to ManJer at year end:
At 31 December 2022, USD 2 is receivable from ManJer (2021: USD 2).
As disclosed in the Directors’ Report, ManJer paid fees to R&H Fund Services (Jersey) Limited (“R&H” or the
“Administrator”) for administration services, which includes the provision of Directors, however following the
restructuring of the fee agreement effective from 1 July 2022, fees for those services are no longer separately
identified following the restructuring of the fee agreement effective from 1 July 2022.
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11.
Related Party Disclosures (continued)
Steven Ross is a director of R&H and a partner of Rawlinson & Hunter, Jersey Partnership, which wholly owns
R&H. Christopher Foulds is a director of R&H. During the year, R&H charged ManJer administration fees,
which include the Company and other entities for which ManJer is the Manager and R&H is the Administrator,
in aggregate, of GBP 214,233 (2021: GBP 411,651), of which GBP nil (2021: GBP 107,116) was outstanding at
the year end.
Peter Ziemba and Stuart Bell are executive officers of WisdomTree, Inc.
12.
Financial Risk Management
The Company is exposed to a number of risks arising from its activities, including credit risk, settlement risk,
liquidity risk and market risk. The Board is responsible for the overall risk management approach and for
approving the risk management strategies and principles. The Board meets frequently to consider the risk
exposures of the Company and to determine appropriate management policies. The risk management policies
employed by the Company to manage these are discussed below.
The Commodity Securities are subject to normal market fluctuations and other risks inherent in investing in
securities and other financial instruments. There can be no assurance that any appreciation in the value of
securities will occur, and the capital value of an investor’s original investment is not guaranteed. The value of
investments may go down as well as up, and an investor may not get back the original amount invested.
The information provided below is not intended to be a comprehensive summary of all the risks associated with
the Commodity Securities and investors should refer to the most recent Prospectuses for a detailed summary
of the risks inherent in investing in the Commodity Securities. Any data provided should not be used or
interpreted as a basis for future forecast or investment performance.
(a)
Credit Risk
Credit risk primarily refers to the risk that Authorised Participants or the Commodity Contract Counterparties will
default on their contractual obligations resulting in financial loss. Each class of Commodity Security is issued
under limited recourse arrangements whereby the holders have recourse only to the relevant Commodity
Contracts (held to support the Commodity Securities) and not to the Commodity Contracts of any other class of
Commodity Securities or to the Company, therefore limiting the credit risk of the Company in connection with
the issue of the Commodity Securities.
There are compulsory redemption provisions as outlined in the prospectus that can be triggered by the
Company or the Commodity Contract Counterparties in certain circumstances whereby a compulsory
redemption of all Commodity Securities in issue would be undertaken. Furthermore, there are restrike
mechanisms in certain classes of short and leveraged products that force a re-set of the price where there are
large swings in the relevant index during a trading day, or which may trigger a compulsory redemption of
Commodity Securities if the price of those Commodity Securities was to fall to zero within a specified intra-day
period.
The total carrying amounts of the amounts receivable awaiting settlement and trade and other receivables best
represent the maximum credit risk exposure at the Statement of Financial Position date. At the reporting date
the Company’s amounts receivable awaiting settlement and trade and other receivables are detailed on the
Statement of Financial Position.
The value of Commodity Securities and the ability of the Company to repay the redemption price is dependent
on the receipt of such amount from the Commodity Contract Counterparties and may be affected by the credit
rating attached to each Commodity Contract Counterparty. Currently the Company has two Commodity
Contract Counterparties, Merrill Lynch and Citigroup. At the reporting date the exposure to the Commodity
Contract Counterparties was split approximately 45% and 55% (2021: 51% and 49%), respectively.
In the event that a Commodity Contract Counterparty was to default, the Company would only transact with the
non-defaulting Commodity Contract Counterparty. Furthermore, the Company could use the proceeds resulting
from the sale of the collateral (see below) to transact with the non-defaulting Commodity Contract Counterparty
to replacing the affected Commodity Contracts where possible.
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12.
Financial Risk Management (continued)
(a)
Credit Risk (continued)
To cover the credit risk under the Commodity Contracts, the Commodity Contract Counterparties are obliged to
place an amount of collateral, equal to or greater than the exposure, into a pledged account with a third party
custodian, being the Bank of New York Mellon (the “Collateral Custodian"). The level of collateral deposited into
the pledged account is assessed against on the total outstanding value of the Commodity Contracts at the end
of the previous trading day. The collateral held with the Collateral Custodian is held in accounts in the names of
the Commodity Contract Counterparties. In the event that a Commodity Contract Counterparty defaults on its
payment obligations, the Company is entitled to exercise control over the collateral amounts placed in the
pledged account.
The realised value of the collateral may differ from the amount owed by the Commodity Contract
Counterparties, as prices fluctuate intraday (i.e. from the last point the exposure and collateral were valued).
Our collateral schemes apply strict margins and concentration limits to reduce the risk of such a loss, but do not
completely remove it. The collateral pledged with the Collateral Custodian is re-assessed on a daily basis to
ensure that the value of the collateral in the pledged account is sufficient relative to the Commodity Contracts
outstanding and to ensure that the eligibility criteria for the collateral continues to be met on a daily basis.
Should the quality of the underlying collateral change on any day, it is removed from the collateral account and
replaced with collateral that meets the existing criteria.
The Board monitors credit risk exposure, including through an assessment of the credit rating of the Commodity
Contract Counterparties (Citigroup: A+ (2021: A+) (Fitch, 19 September 2022 and Merrill Lynch: AA (2021: AA)
(Fitch, 19 September 2022)), in order to ensure the Company’s exposure is managed, and has continued to do
so more closely with a focus on any potential impact of, or developments relating to both the Ukraine Crisis and
COVID-19.
(b)
Settlement Risk
Settlement risk primarily refers to the risk that an Authorised Participant or the Commodity Contract
Counterparty will default on its contractual obligations resulting in financial loss.
The directors believe that settlement risk would only be caused by the risk of the Company’s trading
counterparty not delivering cash, Commodity Contracts or Commodity Securities on the settlement date. The
directors feel that this risk is mitigated as a result of the cash or Commodity Securities settling through the
CREST system. The system ensures that the transaction does not settle until both parties have fulfilled their
contractual obligations.
Amounts outstanding in respect of positions yet to settle are disclosed in notes 7 and 8.
(c)
Liquidity Risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its
financial liabilities as they fall due. The Company’s receivables and payables are all payable on demand and
generally settled on a short-term basis. In addition, amounts in respect of the Management Fee, Licence
Allowance and creation and redemption fees are transferred from the relevant counterparties directly to ManJer
and there are no cash flows through the Company.
The Commodity Securities do not have a contractual maturity date and will only be redeemed at the request of
the holder of the security, which may be requested at any time, or in the case of a compulsory redemption.
Generally, only Authorised Participants can submit applications and redemptions directly with the Company.
Furthermore, liquidity risk of the Company is mitigated because the timing of redemptions of the Commodity
Securities and Commodity Contracts are matched, therefore the Company does not have to wait for a longer-
term contract to mature in order to pay its debts to ex-security holders. Furthermore, while the agreements with
the Commodity Contract Counterparties include limits (both daily and in the aggregate) on the issue and
cancellation of Commodity Contracts, the Company is not obliged to issue and redeem Commodity Securities
in excess of those limits under the terms of the security agreement. Consequently, the Company has not
presented any tabular information in respect of liquidity risk.
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12.
Financial Risk Management (continued)
(d)
Capital Management
The primary objective of the Company’s capital management policy is to ensure that it maintains sufficient
resources for operational purposes. The capital being managed is the Stated Capital as presented in the
Statement of Changes in Equity. Retained Earnings and the Revaluation Reserve, as presented in the
Statement of Changes in Equity, are not considered managed capital as these balances relate to unrealised
gains and losses on Commodity Contracts (held to support the Commodity Securities) and Commodity
Securities, which are reversed on a subsequent redemption of the Commodity Securities and the related
cancellation of Commodity Contracts and will therefore not be realised. The Company is not subject to any
capital requirements imposed by a regulator and there were no changes in the Company’s approach to capital
management during the year.
The Company’s principal activity is the issue and listing of Commodity Securities. These Commodity Securities
are issued and redeemed as demand requires. The Company holds a corresponding number of Commodity
Contracts which matches the total liability of the Commodity Securities issued. ManJer supplies or arranges for
the supply of all management and administration services to the Company and pays all management and
administration costs of the Company. In return for these services the Company has an obligation to
remunerate ManJer, which under the terms of the service agreement is equal to the aggregate of the
Management Fee, Licence Allowance and creation and redemption fees earned.
As all Commodity Securities in issue are supported by an equivalent number of Commodity Contracts held with
the Commodity Contract Counterparties and the running costs of the Company are paid by ManJer, the
directors of the Company consider the capital management and its current capital resources are adequate to
maintain the ongoing listing and issue of Commodity Securities.
(e)
Market Risk
Market risk is the risk that changes in market prices (such as index and equity prices, interest rates and foreign
exchange rates) will affect the Company’s income or the value of its financial instruments held or issued.
i)
Price Risk
As described above, Commodity Securities provide investors with long or short exposure to the
performance of the relevant commodity index. The value of the Company’s liability in respect of the
Commodity Securities fluctuates according to the performance of the underlying commodity index and the
risk of such change in price is managed by the Company by entering into Commodity Contracts with the
Commodity Contract Counterparties which match the liability. Whilst the Commodity Securities are quoted
on the open market, the Company’s ultimate liability relates to its contractual obligations to issue and
redeem Commodity Securities at set prices on each trading day. The Company measures the Commodity
Securities at their fair value in accordance with IFRS 13 rather than at the Contractual Value (as described
in the Prospectus). The gain or loss on the difference between the value of the Commodity Contracts and
the fair value of Commodity Securities would be reversed on a subsequent redemption of the Commodity
Securities and cancellation of the corresponding Commodity Contracts. Refer to note 8 for the further
details regarding fair values.
The Company therefore bears no residual financial risk on a contractual basis from a change in the value of
a commodity, commodity index or currency by reference to the futures price. Furthermore, the impact of
price sensitivity is considered immaterial to these financial statements.
However, there is an inherent risk from the point of view of investors as the values of commodities, and
thus the value of the Commodity Securities, may vary widely due to, amongst other things, changing supply
or demand for a particular commodity, government and monetary policy or intervention, interest rate levels
and global or regional political, economic or financial events. The market price of Commodity Securities is
(and will remain) a function of supply and demand amongst investors wishing to buy and sell Commodity
Securities and the bid-offer spread that the market makers are willing to quote. This is highlighted further in
note 15, and below under the Fair Value Hierarchy.
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12.
Financial Risk Management (continued)
(e)
Market Risk (continued)
Coronavirus disease (COVID-19)
The Board continues to monitor the advice and developments relating to COVID-19. The WisdomTree group
has and continues to implement measures to maintain the ongoing safety and well-being of employees, whilst
continuing to operate business as usual.
Ukraine Invasion
On 24 February 2022, Russia engaged in military actions in the sovereign territory of Ukraine (the “Crisis”). The
Crisis has resulted in the implementation of sanctions and further actions by governments which, as well as the
Crisis itself, have impacted financial and commodities markets.
As Russia is one of the world’s major producers of Nickel, the Crisis has caused market turmoil which, inter
alia, resulted in substantial changes in the price of Nickel.
On 7 March 2022, the calculation agent determined that the intra-day price of the Commodity Contracts
backing the WisdomTree Nickel 3x Daily Short Securities (“3NIS”) had fallen to or below zero during the day of
7 March 2022. Furthermore, the Company also received notice from the Commodity Contract Counterparties
that 7 March 2022 was determined to be a compulsory pricing date in respect of all of the Commodity Contracts
of the same class as 3NIS and that therefore all of such Commodity Contracts were terminated on 7 March
2022 with no payments due to or from the Commodity Contract Counterparties, or from or to the Company. As
a result, the Company released an announcement to the Stock Exchanges that 3NIS was suspended from
trading and further that 3NIS was automatically subject to a compulsory redemption. The redemption amount
of 3NIS available for distribution to holders of 3NIS was calculated as zero.
Due to movements in Nickel prices since 7 March 2022, on 21 March 2022 the calculation agent determined
that the intra-day price of the Commodity Contracts of the same class as the WisdomTree Nickel 3x Daily
Leveraged Securities (“3NIL”) had fallen to or below zero during the day of 21 March 2022. Furthermore, the
Company also received notice from the Commodity Contract Counterparties that 22 March 2022 was
determined to be a compulsory pricing date in respect of all of the Commodity Contracts of the same class as
3NIL and that therefore all of such Commodity Contracts have been terminated on 22 March 2022 with no
payments due to or from the Commodity Contract Counterparties or from or to the Company. As a result, the
Company released an announcement to the Stock Exchanges that 3NIL was suspended from trading and
further that 3NIL was automatically subject to a compulsory redemption. The redemption amount of 3NIL
available for distribution to holders of 3NIL was calculated as zero.
As the Crisis continues, the Board also continues to closely monitor and assess the impact on the Company’s
portfolio operations and valuation and will take any further actions needed or as required under the terms of the
applicable Prospectuses, as facts and circumstances are subject to change and may be specific to investments
and jurisdictions. Whilst it is not currently possible to predict future market conditions and therefore determine if
any further action may be required on any other classes of Commodity Securities, the action that may be
required includes, but is not limited to, temporarily not accepting applications for Commodity Securities,
temporarily suspending Commodity Securities from trading on Stock Exchanges or a compulsory redemption of
Commodity Securities. Other than the actions outlined above in respect of 3NIS and 3NIL, the Company has
not initiated any of these further actions to date. Any such action will be undertaken in accordance with the
constitutive documents of the Commodity Securities. Furthermore, there are mechanisms within the
constitutive documents of the Commodity Securities that enable the Commodity Contract Counterparties to
request a compulsory redemption in certain circumstances as set out and explained within the Prospectuses.
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12.
Financial Risk Management (continued)
(e)
Market Risk (continued)
ii)
Interest Rate Risk
The multiplier used in the pricing of the Commodity Contracts or the Commodity Securities takes into
account the incremental capital enhancement component of the Commodity Security, which includes the
impact of interest rates. This incremental capital enhancement component of the Commodity Contracts
and Commodity Securities is attributable to the security holder. As a result, the Company does not have
significant exposure to interest rate risk.
iii)
Currency Risk
The directors do not consider the Company to have a significant exposure to currency risk arising from the
current economic uncertainties facing a number of countries around the world as the gains or losses on the
liability represented by the Commodity Securities are matched economically by corresponding losses or
gains attributable to the Commodity Contracts.
(f)
Sensitivity Analysis
IFRS 7 requires disclosure of a sensitivity analysis for each type of market risk to which the Company is
exposed to at the reporting date, showing how profit or loss and equity would have been affected by a
reasonably possible change to the relevant risk variable.
The Company’s rights and liability in respect of Commodity Securities and Commodity Contracts, respectively,
relates to its contractual obligations to issue and redeem Commodity Securities at set prices on each trading
day. The fair value of each creation and redemption of Commodity Securities is recorded using the price by
reference to the value of the commodity indices calculated and published by Bloomberg. However, under IFRS
13, the liability is recorded at fair value (being the on-exchange price) which results in a mismatch. As
described in note 15 this mismatch is reversed on the redemption of Currency Securities.
As a result, the Company’s contractual and economic liability in connection with the issue and redemption of
Commodity Securities is matched by movements in corresponding Commodity Transactions. Whilst sensitivity
analysis could be performed on this mismatch, the Company does not have any net exposure to market price
risk. Furthermore the result of the numeric sensitivity is considered not material by the directors and in their
opinion, no sensitivity analysis is required to be disclosed.
(g)
Fair Value Hierarchy
The levels in the hierarchy are defined as follows:
Categorisation within the hierarchy is determined on the basis of the lowest level input that is significant to the
fair value measurement of each relevant asset/liability.
The Company is required to utilise the available on-market price as the Commodity Securities are quoted and
traded on the open market. Where the market on which the Commodity Securities prices are quoted is
determined to be active at the relevant reporting date, the Commodity Securities are classified as level 1
financial liabilities. Where the market on which the Commodity Securities prices are quoted is determined to be
inactive at the relevant reporting date, the Commodity Securities are classified as level 2 financial liabilities.
The Company values the Level 2 Commodity Securities using the unadjusted market price available at each
reporting date. This is considered to most appropriately reflect the price at which transactions would occur as
at the reporting date.
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12.Financial Risk Management (continued)
(g)
Fair Value Hierarchy (continued)
The Company’s rights in respect of Commodity Contracts relate to its contractual obligations to issue and
redeem Commodity Securities at set prices on each trading day. These prices are based on an agreed formula
(set out in the Prospectus), and are equal to the published NAVs of each class of Commodity Security.
Therefore, Commodity Contracts are classified as level 2 financial assets, as the value is calculated using third
party pricing sources supported by observable, verifiable inputs.
The categorisation of the Company’s assets and (liabilities) are as shown below:
The Commodity Securities and the Commodity Contracts are recognised at fair value upon initial recognition
and revalued to fair value in line with the Company’s accounting policy. There are no assets or liabilities
classified in level 3.
Transfers between levels would be recognised if there was a change in circumstances that prevented public
information in respect of Level 1 inputs from being available. Any such transfers would be recognised on the
date of the change in circumstances that cause the transfer. Transfers between levels may also be recognised
if the primary market on which the Commodity Securities prices are quoted was determined to be inactive at the
relevant reporting date. The Company considers both the last trade date and trading volumes during the 5
trading days leading up to each reporting date to determine if the market for a particular Commodity Security is
active. Transfers as a result of the analysis of the activity levels of the market are identified and recognised at
each reporting date.
There were no transfers or reclassifications between Level 1 and Level 2 for any of the assets during the year
or at the reporting date. As at 31 December 2022 Commodity Securities with a fair value of USD 12,285,749
(2021: USD 3,466,895) were transferred from Level 1 to Level 2. Commodity Securities with a fair value of
USD 3,466,895 (2021: USD 2,181,420) were transferred from Level 2 to Level 1.
13.
Ultimate Controlling Party
In accordance with the disclosure requirements of IFRS the directors have determined that no entity meets the
definition of immediate parent or ultimate controlling party. The holder of issued equity shares is HoldCo, a
Jersey registered company. WisdomTree, Inc (formerly WisdomTree Investments, Inc) is the ultimate
controlling party of HoldCo.
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14.
Events Occurring After the Reporting Period
In April 2023 the Company created and launched a new class of Classic Commodity Securities, WisdomTree
California Carbon Securities, which will be available for trading from 19 April 2023 on the London Stock
Exchange and Borsa Italiana and from 20 April 2023 on Deutsche Börse. WisdomTree California Carbon
Securities provide exposure to the performance of the Solactive California Carbon Rolling Futures ER Index.
There have been no other significant events that have occurred since the end of the reporting period up to the
date of signing the Financial Statements which would impact on the financial position of the Company disclosed
in the Statement of Financial Position as at 31 December 2022, or on the results and cash flows of the
Company for the year ended on that date.
15.
Non-GAAP and Non-Statutory Information
As a result of the mis-match in the accounting valuation of Commodity Contracts (held to support the
Commodity Securities) and Commodity Securities (as disclosed in notes 7 and 8) the profits and losses and
comprehensive income of the Company presented in the Statement of Profit or Loss and Other Comprehensive
Income reflect gains and losses which represent the movement in the cumulative difference between the value
of the Commodity Contracts and the price of Commodity Securities.
The Statement of Changes in Equity also reflects the fair value movements on both the Commodity Contracts
(held to support the Commodity Securities) and the Commodity Securities. These gains or losses on the
difference between the value of the Commodity Contracts (held to support the Commodity Securities) and the
price of Commodity Securities would be reversed on a subsequent redemption of the Commodity Securities
and cancellation of the corresponding Commodity Contracts.
Furthermore, each class of Commodity Security is issued under limited recourse arrangements whereby the
holders have recourse only to the relevant Commodity Contracts (held to support the Commodity Securities)
and not to the Commodity Contracts of any other class of Commodity Security or to the Company. As a result,
the Company does not make gains from trading in the underlying Commodity Contracts (held to support the
Commodity Securities) and, from a commercial perspective (with the exception of the impact of Management
Fees and Licence Allowance) gains and losses in respect of Commodity Contracts (held to support the
Commodity Securities) will always be offset by a corresponding loss or gain on the Commodity Securities and
the Company does not retain any net gains or losses.
The mismatched accounting values are as shown below:
To reflect the commercial results, the Company has presented below a non-GAAP and non-Statutory Statement
of Profit or Loss and Other Comprehensive Income and Statement of Changes in Equity for the period which
reflect an Adjustment from Market Value to Contractual Value (as set out in the Prospectus) of Commodity
Securities, together with those gains or losses being transferred to a separate reserve which is deemed non-
distributable.
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DocuSign Envelope ID: 726A186C-AD62-4E8A-A0C5-4F66BC80ACD1
15.
Non-GAAP and Non-Statutory Information (continued)
(a)
Non-GAAP and Non-Statutory Statement of Profit or Loss and Other Comprehensive Income
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DocuSign Envelope ID: 726A186C-AD62-4E8A-A0C5-4F66BC80ACD1
15.
Non-GAAP and Non-Statutory Information (continued)
(b)
Non-GAAP and Non-Statutory Statement of Changes in Equity
4 This represents the difference between the value of Commodity Contracts and the price of Commodity Securities.
42www.wisdomtree.eu
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