WisdomTree Commodity Securities
Limited
Registered No: 90959
Report and Financial Statements for the
Year ended 31 December 2021
WisdomTree Commodity Securities Limited
Contents
www.wisdomtree.eu
WisdomTree Commodity Securities Limited
Management and Administration
Directors
Administrator
Stuart Bell
Christopher Foulds
Steven Ross
Peter Ziemba
R&H Fund Services (Jersey) Limited
Ordnance House
PO Box 83
31 Pier Road
St Helier
Jersey, JE4 8PW
Registered Office
Registrar
Ordnance House
31 Pier Road
St Helier
Jersey, JE4 8PW
Computershare Investor Services (Jersey) Limited
13 Castle Street
St Helier
Jersey, JE1 1ES
Manager
Trustee
WisdomTree Management Jersey Limited
Ordnance House
31 Pier Road
St Helier
Jersey, JE4 8PW
The Law Debenture Trust Corporation plc
Fifth Floor
100 Wood Street
London, EC2V 7EX
United Kingdom
Commodity Contract Counterparty
Commodity Contract Counterparty
Merrill Lynch International
2 King Edward Street
London, EC1A 1HQ
United Kingdom
Citigroup Global Markets Limited
Citigroup Centre
Canada Square, Canary Wharf
London, EC14 5LB
United Kingdom
Auditor
Jersey Legal Advisers
Ernst & Young LLP
Liberation House
Castle Street
St Helier
Jersey, JE1 1EY
Mourant Ozannes
22 Grenville Street
St Helier
Jersey, JE4 8PX
Company Secretary
R&H Fund Services (Jersey) Limited
Ordnance House
31 Pier Road
St Helier
Jersey, JE4 8PW
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WisdomTree Commodity Securities Limited
Directors’ Report
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 2021.
Directors
The names and particulars of the directors of the Company during and since the end of the financial year are:
Stuart Bell
Christopher Foulds
Steven Ross
Peter Ziemba
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, 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”). As a result, the management fee and licence allowance are
transferred directly to ManJer by the Commodity Contract Counterparties under the terms of the Commodity
Contracts and ManJer receives creation and redemption fees directly from the holders of Commodity Securities
who have entered into an authorised participant agreement with the Company (“Authorised Participants”).
Accordingly, there are no cash flows through the Company.
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WisdomTree Commodity Securities Limited
Directors’ Report (Continued)
Review of Operations
The most recent Prospectuses were issued on 13 August 2021 (Classic and Longer Dated) and 16
November 2021 (Short and Leveraged). As at 31 December 2021, the Company had the following number of
classes, in aggregate, of Commodity Securities in issue and admitted to trading on the following exchanges:
As at 31 December 2021, the fair value of assets under management amounted to USD 5,026.7 million
(2020: USD 4,218.7 million). The Company recognises its financial assets (Commodity Contracts) and
financial liabilities (Commodity Securities) at fair value in the Statement of Financial Position.
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.
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. 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 fair value of the Commodity Contracts and the price of
Commodity Securities.
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 note 8 to these financial statements.
The Company’s exposure to risk is disclosed in note 12 to the financial statements.
The Company is entitled to a management fee and licence allowance which are calculated on a daily basis,
and creation and redemption fees on the issue and redemption of Commodity Securities. During the year, the
Company generated income from creation and redemption fees, management fees and licence allowance as
follows:
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WisdomTree Commodity Securities Limited
Directors’ Report (Continued)
Review of Operations (continued)
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
(2020: 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 COVID-19 pandemic continues to persist and the ultimate duration of the pandemic and its short-term
and long term impact on the global economy is unknown. National governments and supranational
organisations in multiple states continue taking steps designed to protect their populations from COVID-19,
including requiring or encouraging home working, the cancellation of sporting, cultural and other events and
restricting or discouraging gatherings of people. COVID-19 has created market turmoil and increased market
volatility generally. Mutations in the virus, a setback in vaccine distribution and negative global economic
consequences arising from the pandemic, amongst other factors, could have a future adverse impact on the
global financial markets. The steps outlined above, and public sentiment, may affect both the volatility and
prices of Commodity Contracts and hence the prices of the Commodity Securities, and such effects may be
significant and may be long-term in nature.
The directors are closely monitoring the advice and developments relating to COVID-19, which is fluid and
rapidly changing. 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.
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 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 2023,
and accordingly these financial statements have been prepared on the going concern basis.
Future Developments
On February 24, 2022, Russia engaged in military actions in the sovereign territory of Ukraine (the “Crisis”).
The board of directors (the “Board”) is closely monitoring developments that may impact financial markets
including sanctions, actions by governments and developments of the Crisis.
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.
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WisdomTree Commodity Securities Limited
Directors’ Report (Continued)
Future Developments (continued)
On 7 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 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.
The compulsory redemption events impacting 3NIS and 3NIL have been determined to be non-adjusting post
balance sheet events and have therefore not impacted the financial position of the Company as at 31
December 2021, or on the results and cash flows of the Company for the year ended on that date. On an
aggregated basis, 3NIS and 3NIL represented 0.2% of the Fair Value of the Commodity Securities issued by
the Company as at 31 December 2021.
The Board will further assess the impact of the Crisis on the fund’s portfolio operations and valuation and will take
any potential 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.
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.
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 group level by an ESG
Steering Committee, which includes senior leaders from across the Wisdomtree 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 group website (https://www.wisdomtree.eu/en-gb/wisdomtree-corporate-responsibility).
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WisdomTree Commodity Securities Limited
Directors’ Report (Continued)
Corporate Social Responsibility (continued)
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 2021.
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.
Dividends
There were no dividends declared or paid in the year (2020: 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.
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.
Directors’ Remuneration
No director has a service contract with the Company. The directors of the Company who are employees
within the WisdomTree Investments, Inc group do not receive separate remuneration in their capacity as
directors of the Company. R&H Fund Services (Jersey) Limited (“R&H” or the “Administrator”) receives a fee
in respect of the directors of the Company who are employees of R&H.
The following directors’ fees have been paid by ManJer on behalf of the Company for the year:
WisdomTree Commodity Securities Limited
Directors’ Report (Continued)
Principal Risks and Uncertainties
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.
The Commodity Securities provide investors with long or short exposure to the performance of the relevant
Commodity Index.
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.
During the year ended 31 December 2021, commodities (with the exception of precious metals) generally
increased in value. The Commodity Securities that provide a long exposure reflected corresponding
increases in value between 31 December 2020 and 31 December 2021 whilst Commodity Securities that
provide a short exposure reflected corresponding decreases in value in the same period. As examples,
WisdomTree Coffee 3* Daily Long Securities gained 203.92% in value between 31 December 2020 and 31
December 2021, whilst WisdomTree Nickel 3* Daily Short Securities dropped 69.01% in the same period.
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, 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 an amount equal to the
management fee and the creation and redemption fees earned (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 2021.
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.
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 2. 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.
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WisdomTree Commodity Securities Limited
Directors’ Report (Continued)
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
commodity and index tracking securities.
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
27 April 2022
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WisdomTree Commodity Securities Limited
Statement of Directors’ Responsibilities
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 2021 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
27 April 2022
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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 2021 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 2021 and of its
loss 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 2023. Management’s assessment has
focussed on a combination of;
►
Assessing the ongoing viability of the company through continued involvement of its
Commodity Contract Counterparties and Authorised Participants;
►
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.
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INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF WISDOMTREE COMMODITY SECURITIES LIMITED (continued)
►
Using our understanding of the business, we evaluated whether the considerations and
method adopted by management in assessing going concern was appropriate.
►
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 in the current economic climate.
►
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 2023.
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,
including controls and changes in the business environment 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
The company has explained climate-related risks in the Corporate Social Responsibility section of the
Directors’ Report. Our procedures on these disclosures therefore consisted solely of considering
whether these disclosures are materially inconsistent with the Company’s Financial Statements, or our
knowledge obtained in the course of the audit, or otherwise appear to be materially misstated.
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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.
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF WISDOMTREE COMMODITY SECURITIES LIMITED (continued)
error in valuation approach could
-13-
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF WISDOMTREE COMMODITY SECURITIES LIMITED (continued)
Our application of materiality
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$50.7 million (2020: US$42.18 million), which is
1% (2020: 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 75% (2020: 50%) of our
materiality, namely US$38.03m (2020: US$21.09m). We had set performance materiality at 50% of
our materiality in the prior year based on our prior experience of identifying 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$2.54m (2020: US$2.11), 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 9,
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.
-14-
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF WISDOMTREE COMMODITY SECURITIES LIMITED (continued)
We have nothing to report in this regard.
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 9, 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 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 UK Listing
Authority and the Central Bank of Ireland (Investment Market Conduct) Rules;
-15-
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF WISDOMTREE COMMODITY SECURITIES LIMITED (continued)
►
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;
►
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 a review of 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 reviewed
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
3 years, covering the years ending 31 December 2019 to 31 December 2021.
►
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: 27 April 2022
-16-
WisdomTree Commodity Securities Limited
Statement of Profit or Loss and Other Comprehensive Income
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 (Loss)/Profit for the Year also represented the Total
Comprehensive Income for the Year.
The notes on pages 21 to 38 form part of these financial statements
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WisdomTree Commodity Securities Limited
Statement of Financial Position
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 17 to 38 were approved and authorised for issue by the board of directors
and signed on its behalf on 27 April 2022.
Christopher Foulds
Director
The notes on pages 21 to 38 form part of these financial statements
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WisdomTree Commodity Securities Limited
Statement of Cash Flows
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”). As a result,
the management fee and licence allowance are transferred directly to ManJer by the Commodity Contract
Counterparties under the terms of the Commodity Contracts and ManJer receives creation and redemption
fees directly from the Authorised Participants. Accordingly, there are no cash flows through the Company.
The notes on pages 21 to 38 form part of these financial statements
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WisdomTree Commodity Securities Limited
Statement of Changes in Equity
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 21 to 38 form part of these financial statements
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WisdomTree Commodity Securities Limited
Notes to the Financial Statements
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 purpose of the Company is to provide a vehicle that facilitates the issuance and subsequent listing and
trading of securities that track the performance of commodity futures (“Commodity Securities”). 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)
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. Creation and redemption fees may also
be waived with certain approved persons where applicable.
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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WisdomTree Commodity Securities Limited
Notes to the Financial Statements (Continued)
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 financial assets and
financial liabilities held at fair value through profit or loss.
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. 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.
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 (in value) of Commodity Contracts,
and furthermore, the Company will hold the Commodity Contracts to support the Commodity Securities
issued and will only cancel Commodity Contracts on the redemption of Commodity Securities, 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 are closely monitoring the advice and developments
relating to the spread of COVID-19, particularly with its impact on ManJer, its assets under management,
and therefore its related revenue streams, in respect of fulfilling the obligations under the services agreement
in place. 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 2023, and
accordingly these financial statements have been prepared on the going concern basis.
Accounting Standards
(a)
Standards, amendments and interpretations adopted in the year:
There were no new standards, amendments and interpretations adopted in the current year that
resulted in a significant effect on these financial statements. In particular, the following standards that
have been revised, issued and became effective but are not considered applicable to the Company:
•
Amendments to IFRS 16 Leases
•
Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 to address the accounting issues that arise when
financial instruments are modified from referencing an IBOR
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WisdomTree Commodity Securities Limited
Notes to the Financial Statements (Continued)
2.
Accounting Policies (continued)
Accounting Standards (continued)
(a)
Standards, amendments and interpretations adopted in the year (continued):
As described in note 12, 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 and whilst this may impact the values of the
Commodity Contracts and Commodity Securities, there will be no residual exposure to the Company.
(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 1 Presentation of Financial Statements (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 16 Property, Plant and Equipment (effective for annual periods beginning on or
after 1 January 2022)
•
Amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets (effective for
annual periods beginning on or after 1 January 2022)
•
Annual Improvements to IFRS (impacting IFRS 1, IFRS 9 and IAS 41)
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
ii)
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.
iii)
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 are classified as financial assets at fair value through profit or loss under
IFRS 9 and the Commodity Securities held 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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WisdomTree Commodity Securities Limited
Notes to the Financial Statements (Continued)
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 closing
mid-market price on 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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WisdomTree Commodity Securities Limited
Notes to the Financial Statements (Continued)
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 on a daily basis in accordance with the terms of the
securities issued. 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.
Accrued creation and redemption fees are invoiced on a quarterly basis and settled directly between
ManJer and the relevant Authorised Participants.
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. Creation and redemption fees are 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
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. 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.
The Company reports information on its operations for each of the Company’s business segments only, as
the Company only has one geographic segment which is Europe. In addition, the Company has no single
major customer from which greater than 10% of income is generated. The directors believe that there are
two business segments comprising Classic & Longer Dated and Short & Leveraged. The Company only has
one geographic segment which is Europe. In addition, the Company has no single major customer from
which greater than 10% of income is generated. As a result the Company discloses information on its
operations separately for each of these business segments only, in note 5.
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WisdomTree Commodity Securities Limited
Notes to the Financial Statements (Continued)
Audit Fees for the year of GBP 39,300 will be met by ManJer (2020: GBP 28,730).
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 (2020: 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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WisdomTree Commodity Securities Limited
Notes to the Financial Statements (Continued)
5.
Segmental Reporting (continued)
Additional information relating to the assets and liabilities associated with these Commodity Securities is
disclosed in notes 7 and 8.
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.
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WisdomTree Commodity Securities Limited
Notes to the Financial Statements (Continued)
7.
Commodity Contracts (continued)
As at 31 December 2021, 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 as a result of unsettled redemptions of Commodity
Securities is USD 37,414,879 (2020: USD 15,365,725).
•
The amount payable on Commodity Contracts as a result of unsettled creations of Commodity
Securities is USD 5,922,436 (2020: USD 8,834,934).
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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WisdomTree Commodity Securities Limited
Notes to the Financial Statements (Continued)
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 2021, 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 as a result of unsettled creations of Commodity Securities is USD 5,922,436
(2020: USD 8,834,934).
•
The amount payable as a result of unsettled redemptions of Commodity Securities is USD
37,414,879 (2020: USD 15,365,725).
The below reconciliation of changes in the Commodity Securities, being liabilities arising from financing
activities, includes only non-cash changes.
- 29 -www.wisdomtree.eu
WisdomTree Commodity Securities Limited
Notes to the Financial Statements (Continued)
9.
Trade and Other Payables
As at 31 December
20212020
USDUSD
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
As at 31 December
20212020
USDUSD
2 Shares of Nil Par Value, Issued at GBP 1 Each and Fully
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:
Year ended 31 December
20212020
USDUSD
The following balances were due to ManJer at year end:
As at 31 December
20212020
USDUSD
At 31 December 2021, USD 2 is receivable from ManJer (2020: USD 2) in relation to unpaid share capital.
As disclosed in the Directors’ Report, ManJer paid Directors’ Fees in respect of the Company of GBP 16,000
(2020: GBP 16,000).
Steven Ross is a director of R&H Fund Services (Jersey) Limited (“R&H” or the “Administrator”) and a partner of
Rawlinson & Hunter, Jersey Partnership, which wholly owns R&H. Christopher Foulds is a senior employee of
R&H. During the year, R&H charged ManJer administration fees in respect of the Company of GBP 411,651
(2020: GBP 361,212), of which GBP 107,116 (2020: GBP 90,303) was outstanding at the year end.
Peter Ziemba and Stuart Bell are executive officers of WisdomTree Investments, Inc.
- 30 -www.wisdomtree.eu
WisdomTree Commodity Securities Limited
Notes to the Financial Statements (Continued)
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 holders of Commodity Securities who have entered into an
authorised participant agreement with the Company (“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 International and Citigroup Global Markets Limited. At the
reporting date the exposure to the Commodity Contract Counterparties was split approximately 51% and
49% (2020: 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.
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 pledge account with the
custodian, based on the total outstanding value of the Commodity Contracts at the end of the previous
trading day. The collateral held with the custodian is held in accounts in the names of the Commodity
Contract Counterparties. In the event of default by a Commodity Contract Counterparty, the Company has
rights which it can exercise over the collateral amounts placed in this pledge account. The realised value of
the collateral may differ from the amount owed by the Currency Transaction Counterparty, 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.
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WisdomTree Commodity Securities Limited
Notes to the Financial Statements (Continued)
12.
Financial Risk Management (continued)
(a)
Credit Risk (continued)
The Board monitors credit risk exposure in order to ensure the Company’s exposure is managed. The
collateral pledged with the custodian is re-assessed on a daily basis 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 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 COVID-19, which
is fluid and rapidly changing.
(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 maturity profiles 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.
(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.
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WisdomTree Commodity Securities Limited
Notes to the Financial Statements (Continued)
12.
Financial Risk Management (continued)
(d)
Capital Management (continued)
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. In particular, during the year ended 31 December 2021,
commodities (with the exception of precious metals) generally increased in value. The Commodity
Securities that provide a long exposure reflected corresponding increases in value between 31
December 2020 and 31 December 2021 whilst Commodity Securities that provide a short exposure
reflected corresponding decreases in value in the same period. As examples, WisdomTree Coffee 3*
Daily Long Securities gained 203.92% in value between 31 December 2020 and 31 December 2021,
whilst WisdomTree Nickel 3* Daily Short Securities dropped 69.01% in the same period.
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.
Coronavirus disease (COVID-19)
The COVID-19 pandemic continues to persist and the ultimate duration of the pandemic and its short-
term and long-term impact on the global economy is unknown. National governments and supranational
organisations in multiple states continue taking steps designed to protect their populations from COVID-
19, including requiring or encouraging home working, the cancellation of sporting, cultural and other
events and restricting or discouraging gatherings of people.
- 33 -www.wisdomtree.eu
WisdomTree Commodity Securities Limited
Notes to the Financial Statements (Continued)
12.
Financial Risk Management (continued)
(e)Market Risk (continued)
Coronavirus disease (COVID-19) (continued)
COVID-19 has created market turmoil and increased market volatility generally. Mutations in the virus, a
setback in vaccine distribution and negative global economic consequences arising from the pandemic,
amongst other factors, could have a future adverse impact on the global financial markets. The steps
outlined above, and public sentiment, may affect both the volatility and prices of commodities and hence
the prices of the Securities, and such effects may be significant and may be long-term in nature. 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 directors’ consideration in respect of the going concern position of the
Company is set out in note 2.
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:
•
Level 1
•
Level 2
•
Level 3
fair value based on quoted prices in active markets for identical assets.
fair values based on valuation techniques using observable inputs other than quoted
prices.
fair values based on valuation techniques using inputs that are not based on
observable market data.
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.
- 34 -www.wisdomtree.eu
WisdomTree Commodity Securities Limited
Notes to the Financial Statements (Continued)
12.
Financial Risk Management (continued)
(g)Fair Value Hierarchy (continued)
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.
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 through profit or loss
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 2021 Commodity Securities with a fair value of USD
3,466,895 were transferred from Level 1 to Level 2 (2020: USD nil). Commodity Securities with a fair value
(as at 1 January 2021) of USD 2,181,420 were transferred from Level 2 to Level 1 (2020: USD 14,605,706).
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 Investments, Inc is the ultimate controlling party of HoldCo.
- 35 -www.wisdomtree.eu
WisdomTree Commodity Securities Limited
Notes to the Financial Statements (Continued)
14.
Events Occurring After the Reporting Period
On February 24, 2022, Russia engaged in military actions in the sovereign territory of Ukraine (the “Crisis”).
The Board is closely monitoring developments that may impact financial markets including sanctions, actions
by governments and developments of the Crisis.
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 of the
same class as 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.
The compulsory redemption events impacting 3NIS and 3NIL have been determined to be non-adjusting post
balance sheet events and have therefore not impacted the financial position of the Company as at 31
December 2021, or on the results and cash flows of the Company for the year ended on that date. On an
aggregated basis, 3NIS and 3NIL represented 0.2% of the Fair Value of the Commodity Securities issued by
the Company as at 31 December 2021.
The Board will further assess the impact of the Crisis on the fund’s portfolio operations and valuation and will take
any potential 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.
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 2021, 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.
- 36 -www.wisdomtree.eu
WisdomTree Commodity Securities Limited
Notes to the Financial Statements (Continued)
15.
Non-GAAP and Non-Statutory Information (continued)
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:
Year ended 31 December
20212020
USDUSD
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.
(a)
Non-GAAP and Non-Statutory Statement of Profit or Loss and Other Comprehensive Income
- 37 -www.wisdomtree.eu
WisdomTree Commodity Securities Limited
Notes to the Financial Statements (Continued)
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.
- 38 -www.wisdomtree.eu
www.wisdomtree.eu