WisdomTree Foreign Exchange Limited
Registered No: 103518
Report and Financial Statements for the
Year ended 31 December 2021
WisdomTree Foreign Exchange Limited
Contents
www.wisdomtree.eu
WisdomTree Foreign Exchange 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
Auditor
Currency Transaction Counterparty
Ernst & Young LLP
Liberation House
Castle Street
St Helier
Jersey, JE1 1EY
Morgan Stanley & Co. International plc
25 Cabot Square
Canary Wharf
London, E14 4QA
United Kingdom
Custodian
Jersey Legal Advisers
The Bank of New York Mellon
Brussels Custody Client Services
46 Rue Montoyer
1000 Brussels, Belgium
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 Foreign Exchange Limited
Directors’ Report
The directors of WisdomTree Foreign Exchange Limited (“FXL” 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 collateralised currency securities (“Currency
Securities”). Currency Securities are undated secured limited recourse financial instruments designed to
provide investors with long or short exposure to the daily foreign exchange performance of developed or
emerging market currencies or baskets of developed market currencies measured against the US Dollar
(“USD”), the Euro (“EUR”) or the British Pound (“GBP”), less applicable fees. This is achieved by the
Currency Securities tracking published currency indices. The price of the Currency Securities is calculated
on a daily basis to reflect the change in the relevant currency index and takes into account the payment of a
management fee and a daily spread. The Currency Securities are denominated in USD, EUR or GBP.
Currency Securities are backed by unfunded currency transactions (“Currency Transactions”) with terms
corresponding to the terms of Currency Securities. Each time Currency Securities are issued or redeemed,
corresponding Currency Transactions between the Company and the Currency Transaction Counterparty are
created or closed by the Company. Cash received by the Company linked to Currency Transactions entered
into with a Currency Transaction Counterparty is used to enter into a USD, GBP or EUR denominated daily
repurchase transaction with the Currency Transaction Counterparty in exchange for eligible collateral on the
terms described in the Company’s Prospectus (collectively the “Underlying Assets”). The company has
entered into a Collateral Administration Master Agreement with the Bank of New York Mellon as the collateral
custodian. On each day the Currency Transaction Counterparty is required to pay back the USD, GBP and
EUR amounts in exchange for the eligible collateral held the previous day, which allows the Company to
enter into new daily repurchase transactions in exchange for eligible collateral required on that day, however
in accordance with the terms of a supplemental agreement to the Collateral Administration Master
Agreement those new daily repurchase transactions can be paired with maturing deals on the previous daily
repurchase transactions meaning that the net amounts (in each of USD, GBP and EUR) are transferred each
day. This daily process ensures that eligible collateral (at fair market value) received from the Currency
Transaction Counterparty represents at least 100% of the value of the cash paid for the daily repurchase
transaction entered into. A daily payment amount will also be calculated in respect of each Currency
Transaction on each day to reflect the movement in the relevant currency index and this amount will be
payable by either the Company or the Currency Transaction Counterparty. No trading or management of
futures contracts is required by the Company.
The Company has entered into a facility agreement with Morgan Stanley & Co. International plc (“Morgan
Stanley”), currently the only Currency Transaction Counterparty, enabling the Company to create and cancel
Currency Transactions on an ongoing basis.
The Company earns a management fee based upon the contractual value of Currency Securities in issue,
expressed as an annual percentage, calculated on a daily basis and reflected in the net asset value (“NAV”)
of the securities on a daily basis, and paid monthly in arrears.
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WisdomTree Foreign Exchange Limited
Directors’ Report (Continued)
Principal Activities (continued)
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 Currency 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 and the creation and
redemption fees, less any expenses directly incurred (the “ManJer Fee”). ManJer receives creation and
redemption fees directly from the holders of Currency Securities who have entered into an authorised participant
agreement with the Company (“Authorised Participants”), and accordingly, there are no related cash flows through
the Company in respect of creation and redemption fees.
Review of Operations
The most recent Prospectus was issued on 18 November 2021. As at 31 December 2021 the Company had
the following number of classes, in aggregate, of Currency 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 330.2 million (2020:
USD 454.1 million). The Company recognises its financial assets (Currency Transactions) and financial
liabilities (Currency Securities) at fair value in the Statement of Financial Position.
The Company has entered into contractual obligations to issue and redeem Currency Securities at set prices
on each trading day. These prices are based on agreed formulae published in the Prospectus, and are equal
to the published NAV of each class of Currency 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 Currency Securities are listed to be the principal
market and as a result the fair value of the Currency 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 Currency Transactions and Currency 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 Currency Transactions and the price of Currency Securities.
The gain or loss on Currency Securities and the Currency Transactions is recognised through profit or loss in
line with the Company’s accounting policy. This is presented in more detail in note 7 to these financial
statements.
The Company’s exposure to risks is disclosed in note 12 to the financial statements.
The Company is entitled to a management fee which is calculated on a daily basis, and creation and
redemption fees on the issue and redemption of Currency Securities. During the year, the Company
generated income from creation and redemption fees and management fees as follows:
WisdomTree Foreign Exchange 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 and creation and redemption fees, which, after taking into account other operating income
and expenses, generated a result before fair value movements for the year of USD Nil (2020: USD Nil).
As the difference in the valuation of Currency Transactions (held to support the Currency Securities) and
Currency Securities would be reversed on a subsequent redemption of the Currency Securities and closure
of the corresponding Currency Transactions (as described further in note 8), 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 Currency Transactions and hence the prices of the Currency 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 the spread of 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 Currency 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 Currency Securities will
always coincide with the closing of an equal amount of Currency Transactions, 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 Board of
directors (the “Board”) is closely monitoring developments that may impact financial markets including
sanctions, actions by governments and developments of the crisis. Whilst there are no Currency
Transactions (and therefore no Currency Securities) with an exposure to Russian Roubles, Belarusian
Rubles or Ukrainian Hryvnia, the Board will further assess the impact on the fund’s portfolio operations and
valuation and will take any potential actions needed, as facts and circumstances are subject to change and
may be specific to investment strategies and jurisdictions.
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.
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WisdomTree Foreign Exchange Limited
Directors’ Report (Continued)
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).
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.
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WisdomTree Foreign Exchange Limited
Directors’ Report (Continued)
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:
Principal Risks and Uncertainties
There is an inherent risk from the point of view of investors as the values of currencies, and thus the value of
the Currency Securities, may vary widely due to, amongst other things, changing supply and demand for a
particular currency, government and monetary policy or intervention, interest rate levels and global or
regional political, economic or financial events. The market price of Currency Securities is (and will remain) a
function of supply and demand amongst investors wishing to buy and sell Currency Securities and the bid or
offer spread that the market makers are willing to quote.
The Currency Securities provide investors with long or short exposure to the daily foreign exchange
performance of developed and emerging market currencies measured against USD, EUR or GBP.
Movements in the value of the Underlying Assets, and thus the value of the Currency Securities, may vary
widely which could have an impact on the demand for the Currency Securities issued by the Company.
These movements are shown in notes 7 and 8.
In some cases, movements in exchange rates can be so significant that they lead to the level of a currency
index for any class falling to zero. Since leveraged currency indices provide leveraged exposure to daily
changes in foreign exchange rates calculated against a base value determined on the second previous
business day, it is possible that in certain highly volatile markets a leveraged currency index may fall to zero
where the foreign exchange rate moves by a large amount over the course of two trading days or even
where a particular exchange rate moves by a very large amount over the course of one day. In these
circumstances the Currency Securities for that class may become subject to compulsory redemption at a
zero price. In such situations, the Currency Securities may be redeemed for no value and a security holder
will receive no payment on that redemption.
During the year ended 31 December 2021, USD weakened across all major competitors and the Currency
Securities that are long USD dropped in value between 31 December 2020 and 31 December 2021, whilst
Currency Securities that are short USD gained in value in the same period. As examples, WisdomTree Short
USD Long EUR 5x Daily Securities dropped 45.10% in value between 31 December 2020 and 31 December
2021, with the opposite side of the currency pair, WisdomTree Short EUR Long USD 5x Daily Securities
gaining 45.25% in the same period.
Each Currency Security is a debt instrument whose redemption price is linked to the performance of the
underlying currency index. Each class of Currency Security is issued under limited recourse arrangements
whereby the holders have recourse only to the relevant Underlying Assets held to support the Currency
Securities and not to the Underlying Assets of any other class of Currency Security or the Company.
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WisdomTree Foreign Exchange Limited
Directors’ Report (Continued)
Principal Risks and Uncertainties (continued)
The cash flows of the Company relate to:
•
the receipt and payment of amounts on the creation and redemption of Currency Securities;
•
the receipt and payment of the Daily Payment Amounts transferred between the Company and the
Currency Transaction Counterparty; and
•
the receipt and payment of the net movements on the daily repurchase transactions (arising from
creation and redemption activity, the impact of Interest charges and the Management Fees as well
as the reinvestment of the daily payment amount).
As a result, those cash flows are impacted by both the movements in the levels of the underlying currency
indices (the daily payment amount) as well as the demand amongst investors wishing to buy and sell
Currency Securities (resulting in creation and redemption activity), which itself may be also be driven by
movements in the underlying currency indices.
Any movements in value of those Underlying Assets backing the Currency Securities are wholly attributable
to the holders of the Currency Securities, the Company has no residual exposure to movements in the value
of the Underlying Assets. 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) the gains or losses
on the liability represented by the Currency Securities are matched economically by corresponding losses or
gains attributable to the Underlying Assets backing the Currency Securities (see detail on page 3 regarding
the accounting mis-match).
Furthermore, the Company is obligated to remunerate ManJer with an amount equal to the management fee and
the creation and redemption fees earned less any expenses directly incurred (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 Currency Securities and the Currency Transactions are
disclosed in note 12 to the 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.
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 Currency
Securities, has not undertaken any business, save for issuing and redeeming Currency 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
Currency Securities and performing the obligations and exercising its rights in relation thereto.
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WisdomTree Foreign Exchange Limited
Directors’ Report (Continued)
Internal Control (continued)
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 currency 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 Foreign Exchange 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 FOREIGN EXCHANGE LIMITED
Opinion
We have audited the financial statements of WisdomTree Foreign Exchange 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
profit for the year then ended;
►
have been properly prepared in accordance with IFRS; and
►
have been properly prepared in accordance with the requirements of the Companies (Jersey)
Law 1991.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and
applicable law. Our responsibilities under those standards are further described in the Auditor’s
responsibilities for the audit of the financial statements section of our report. We are independent of the
company in accordance with the ethical requirements that are relevant to our audit of the financial
statements, including the UK FRC’s Ethical Standard as applied to listed public interest entities, and we
have fulfilled our other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our opinion.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors’ use of the going concern
basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the
directors’ assessment of the company’s ability to continue to adopt the going concern basis of
accounting included:
►
We obtained an understanding of management’s rationale for using the going concern basis of
accounting and confirmed our understanding of management’s Going Concern assessment
process including the process they adopted to capture all key factors in their assessment;
►
We obtained management’s board approved going concern assessment covering the period
of assessment from the date of signing to 30 April 2023. Management’s assessment has
focussed on a combination of;
►
Assessing the ongoing viability of the company through continued involvement of its
Currency Transaction Counterparty, Custodian 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 FOREIGN EXCHANGE 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 FOREIGN EXCHANGE 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.
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INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF WISDOMTREE FOREIGN EXCHANGE LIMITED (continued)
any error in valuation approach
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INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF WISDOMTREE FOREIGN EXCHANGE LIMITED (continued)
In the prior year, our auditor’s report included a key audit matter in relation to Restatement as a
result of a reassessment of the accounts held with the Custodian and the impact of the
reassessment on presented Cash Flows. This matter was resolved in 2020 audit and therefore was
not included as a key audit matter in the current year.
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$3.30 million (2020: US$4.54 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 50% (2020: 50%) of our
materiality, namely US$1.65m (2020: US$2.27m). We have set performance materiality at this
percentage based on our prior experience of identifying audit differences.
-14-
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF WISDOMTREE FOREIGN EXCHANGE LIMITED (continued)
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$165k (2020: US$227k), 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.
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.
-15-
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF WISDOMTREE FOREIGN EXCHANGE LIMITED (continued)
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;
►
We understood how WisdomTree Foreign Exchange 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.
-16-
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF WISDOMTREE FOREIGN EXCHANGE LIMITED (continued)
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 August 2022
-17-
WisdomTree Foreign Exchange 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 Currency Transactions and the price of Currency
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 22 to 41 form part of these financial statements
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WisdomTree Foreign Exchange 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 18 to 41 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 22 to 41 form part of these financial statements
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WisdomTree Foreign Exchange Limited
Statement of Cash Flows
Cash Flows from Investing Activities represent amounts linked to Currency Transactions entered into with a
Currency Transaction Counterparty, and which are used to enter into USD, GBP or EUR denominated daily
repurchase transactions with the Currency Transaction Counterparty in exchange for eligible collateral on the
terms described in the Company’s Prospectus (collectively the “Underlying Assets”). On each day the
Currency Transaction Counterparty is required to pay back the USD, GBP and EUR amounts in exchange
for the eligible collateral held the previous day, which allows the Company to enter into new daily repurchase
transactions in exchange for eligible collateral required on that day, however in accordance with the terms of
a supplemental agreement to the Collateral Administration Master Agreement those new daily repurchase
transactions can be paired with maturing deals on the previous daily repurchase transactions meaning that
the net amounts (in each of USD, GBP and EUR) are transferred each day. These cash flows are reported
on a net basis in accordance with IAS 7.
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 Currency 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 and the creation and
redemption fees, less any expenses directly incurred (the “ManJer Fee”). ManJer receives creation and
redemption fees directly from the holders of Currency Securities who have entered into an authorised participant
agreement with the Company (“Authorised Participants”), and accordingly, there are no related cash flows through
the Company in respect of creation and redemption fees.
The notes on pages 22 to 41 form part of these financial statements
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WisdomTree Foreign Exchange 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 Currency Transactions and the price of
Currency Securities is set out in note 15.
The notes on pages 22 to 41 form part of these financial statements
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WisdomTree Foreign Exchange Limited
Notes to the Financial Statements
1.
General Information
WisdomTree Foreign Exchange 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 published currency indices (“Currency Securities”). Currency Securities are backed
by unfunded currency transactions (“Currency Transactions”) with terms corresponding to the terms of Currency
Securities. Each time Currency Securities are issued or redeemed, corresponding Currency Transactions between
the Company and the Currency Transaction Counterparty are created or closed by the Company. Cash received
by the Company linked to Currency Transactions entered into with a Currency Transaction Counterparty is used to
enter into a USD, GBP or EUR denominated daily repurchase transaction with the Currency Transaction
Counterparty in exchange for eligible collateral on the terms described in the Company’s Prospectus (collectively
the “Underlying Assets”). On each day the Currency Transaction Counterparty is required to pay back the USD,
GBP and EUR amounts in exchange for the eligible collateral held the previous day, which allows the Company to
enter into new daily repurchase transactions in exchange for eligible collateral required on that day, however in
accordance with the terms of a supplemental agreement to the Collateral Administration Master Agreement those
new daily repurchase transactions can be paired with maturing deals on the previous daily repurchase
transactions meaning that the net amounts (in each of USD, GBP and EUR) are transferred each day. This daily
process therefore ensures that eligible collateral (at market fair value) received from the Currency Transaction
Counterparty represents at least 100% of the exposure of the daily repurchase transaction receivable on a daily
basis. A daily payment amount will also be calculated in respect of each Currency Transaction on each day to
reflect the movement in the relevant currency index and this amount will be payable by either the Company or the
Currency Transaction Counterparty.
Each class of Currency Security is issued under limited recourse arrangements whereby the holders have
recourse only to the relevant Underlying Assets held to support the Currency Securities and not to the
Underlying Assets of any other class of Currency Security or to the Company. The Company does not make
gains from trading in the Underlying Assets. As a result, (and with the exception of the impact of
management fees), from a commercial perspective gains and losses in respect of Currency Transactions will
always be offset by a corresponding loss or gain on the Currency Securities and therefore, commercially the
Company does not retain any net gains or losses or net risk exposures. However, the difference in valuation
between Currency Transactions and Currency Securities creates a mis-match between accounting values
reported within these financial statements. This difference in valuation would be reversed on a subsequent
redemption of the Currency Securities and cancellation of the corresponding Currency Transactions. 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 Currency Transactions and Currency Securities given the gain or loss would
be reversed on a subsequent redemption of the Currency Securities and cancellation of the corresponding
Currency Transactions, 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 from a third party which fully hedges the exposure of the Company.
The Company is entitled to:
(1)
a management fee which is calculated by applying a fixed percentage to the Contractual Value of
Securities in issue on a daily basis, less any expenses directly incurred (the “Management Fee”); and
(2)
creation and redemption fees on the issue and redemption of the Securities.
No creation or redemption fees are payable to the Company when investors trade in the 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.
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WisdomTree Foreign Exchange Limited
Notes to the Financial Statements (Continued)
1.
General Information (continued)
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 Currency Securities. In return for these services, the
Company pays ManJer an amount equal to the management fee and the creation and redemption fees
earned, less any expenses directly incurred (the “ManJer Fee”). As a result, the Company recognises a
result before fair value movements of nil for each period.
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 Currency 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 Currency Securities will
always coincide with the closing of an equal amount of Currency Transactions, 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.
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.
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WisdomTree Foreign Exchange Limited
Notes to the Financial Statements (Continued)
2.
Accounting Policies (continued)
(a)
Standards, amendments and interpretations adopted in the year (continued):
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
As described in note 12, the pricing of the Currency Transactions or the Currency Securities takes into
account the incremental capital enhancement component of the Currency Security, which includes the
impact of interest rates. This incremental capital enhancement component of the Currency Transactions and
Currency Securities is attributable to the security holder and whilst this may impact the future values of the
Currency Transactions and Currency 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.
Currency Transactions
The Currency Securities are backed Currency Transactions, which are unfunded currency transactions with
terms corresponding to the terms of Currency Securities. The Currency Transactions are made up of two
components on each day:
•
Daily Repurchase Transactions: Cash received by the Company (linked to Currency Transactions
entered into with a Currency Transaction Counterparty) which is used to enter into a USD, GBP or
EUR denominated daily repurchase transaction with the Currency Transaction Counterparty in
exchange for eligible collateral on the terms described in the Company’s Prospectus. Each day the
Currency Transaction Counterparty pays back the USD, GBP and EUR amounts in exchange for the
eligible collateral held the previous day, allowing the Company to enter into new daily repurchase
transactions in exchange for eligible collateral required on that day, however in accordance with the
terms of a supplemental agreement to the Collateral Administration Master Agreement those new
daily repurchase transactions can be paired with maturing deals on the previous daily repurchase
transactions meaning that the net amounts (in each of USD, GBP and EUR) are transferred each
day. This daily process ensures that eligible collateral (at market fair value) received from the
Currency Transaction Counterparty represents at least 100% of the exposure of the daily repurchase
transaction receivable on a daily basis.
•
Daily Payment Amount: calculated in respect of each Currency Transaction on each day to reflect
the movement in the relevant currency index and this amount will be payable by either the Company
or the Currency Transaction Counterparty.
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WisdomTree Foreign Exchange Limited
Notes to the Financial Statements (Continued)
2.
Accounting Policies (continued)
Accounting Standards (continued)
Currency Transactions (continued)
i)
Issue and Redemption
Each time a Currency Security is issued or redeemed by the Company, a corresponding number and
value of Currency Transactions are created or closed with Morgan Stanley & Co. International plc
(“Morgan Stanley”), which represent financial assets of the Company. Upon initial recognition, the value is
recorded using the price calculated based on the formula set out in the Prospectus.
Financial assets are recognised and de-recognised on the transaction (trade) date.
ii)
Classification
Each Currency Transaction comprises a financial instrument whose cancellation price is linked to the
performance of the relevant currency index. The Currency Transactions are classified as financial assets,
and are recognised as follows:
•
the amount receivable from the Currency Transaction Counterparty in respect of the Daily
Repurchase Transactions is recognised at amortised cost; and
•
the Daily Payment Amount is recognised at fair value through profit or loss under IFRS 9 due to this
being a derivative financial instrument.
iii)
Pricing
The fair value of the Daily Payment Amount component of the Currency Transactions is calculated based
on the movement in the performance of the relevant MSFXsm Currency Indices. The MSFXsm Currency
Indices are total return indices and are calculated and published by Morgan Stanley and are calculated in
accordance with the MSFXsm Indices Manual.
The combination of the value of the Daily Repurchase Transactions and the fair value of the Daily
Payment Amount represents the fair value of the Currency Transactions. This valuation methodology is
consistent with the formula set out in the Prospectus whereby a single price is established for each
Currency Transaction as at the end of each Pricing Day (the Contractual Value).
Currency Securities
i)
Issue and Redemption
Each time a Currency Security is issued or redeemed by the Company a corresponding number and
value of Currency Transactions are created or closed with Morgan Stanley. The Currency 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 on next page).
Financial liabilities are recognised and de-recognised on the transaction (trade) date.
ii)
Classification at fair value through Profit or Loss
Each Currency Security comprises a financial instrument whose redemption price is linked to the
performance of the relevant currency index adjusted by the applicable fees and expenses.
The Currency Securities are classified as financial liabilities measured at fair value through profit or loss
under IFRS 9 due to an embedded derivative. This also significantly reduces a measurement or
recognition inconsistency that would otherwise arise from measuring assets or liabilities or recognising
the gains and losses on them on different bases.
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WisdomTree Foreign Exchange Limited
Notes to the Financial Statements (Continued)
2.
Accounting Policies (continued)
Currency Securities (continued)
iii)
Pricing
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 Currency Securities are listed to
be the principal market and as a result the fair value of the Currency 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 Currency Securities are priced using the closing mid-market price on
the Statement of Financial Position date.
Consequently, a difference arises between the value of Currency Transactions (held to support the
Currency Securities) and Currency Securities (at market value) presented in the Statement of Financial
Position. This difference is reversed on a subsequent redemption of the Currency Securities and closure
of the corresponding Currency Transactions.
Currency Transactions and Currency Securities Awaiting Settlement
The issue and redemption of Currency Securities, and the creation or closure of Currency Transactions, 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 Currency Transactions and the
Currency 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.
Cash, Cash Equivalents and Overdraft Facilities
The Company has established separate Cash Accounts (GBP, USD and EUR) with the Bank of New York
Mellon (“BoNY”) as well as Overdraft Facilities, linked to each of the Cash Accounts, which together facilitate
the cash flows related to the receipt and payment of amounts on the creation and redemption of Securities
as well as the transfer of the Daily Payment Amounts required for the subsequent days daily repurchase
transaction. Cash and Cash Equivalents include deposits held at call with BoNY.
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. 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 debt 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 Currency
Transactions (held to support the Currency Securities) and Currency Securities, which are reversed on a
subsequent redemption of the Currency Securities and the related cancellation of Currency Transactions and
will therefore not be realised.
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WisdomTree Foreign Exchange 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
Management Fees are calculated by applying a fixed percentage to the Contractual Value of Currency
Securities in issue on a daily basis in accordance with the terms of the securities issued. The
Management Fees are accrued and recognised on a daily basis and accrued management fees are
invoiced and settled on a monthly basis.
ii)
Creation and Redemption Fees
Fees for the issue and redemption of Currency 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 a majority of the Currency
Transactions entered into and the Currency 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 each 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 has not provided segmental information as the Company has only one business or product
group, Currency Securities, and geographical segment which is Europe. In addition, the Company has no
single major customer from which greater than 10% of income is generated.
All information relevant to the understanding of the Company’s activities is included in these financial
statements.
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WisdomTree Foreign Exchange Limited
Notes to the Financial Statements (Continued)
Audit Fees for the year of GBP 29,500 will be met by ManJer (2020: GBP 26,230).
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).
Under the terms of the Collateral Administration Master Agreement, the Company has established and
maintains Custody Accounts with BoNY (as both Custodian and Collateral Administrator) in respect of its
dealings with the Currency Transaction Counterparty. The Company has also established separate Cash
Accounts (GBP, USD and EUR) with BoNY, as well as Overdraft Facilities, linked to each of the Cash
Accounts, which together facilitate the cash flows related to the receipt and payment of amounts on the
creation and redemption of Securities as well as the transfer of the Daily Payment Amounts required for the
subsequent days daily repurchase transaction.
The net amount of cash held, or overdraft facility utilised, at the close of each day is equal to the amounts
accrued but not yet transferred in respect to management fees, net of any interest applied to the Cash
Accounts by BoNY.
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WisdomTree Foreign Exchange Limited
Notes to the Financial Statements (Continued)
6.
Trade and Other Receivables
As at 31 December 2021, there were certain Currency Transactions awaiting settlement in respect of the
creation or redemption of Currency Securities with transaction dates before the year end and settlement
dates in the following year:
•
The amount receivable on Currency Transactions (Daily Repurchase Transactions) as a result of
unsettled redemptions of Currency Securities is USD nil (2020: USD 3,196,435).
•
The amount payable on Currency Transactions (Daily Repurchase Transactions) as a result of
unsettled creations of Currency Securities is USD 215,636 (2020: USD 377,230).
The below table shows a reconciliation of changes in the Currency Transactions, based upon the underlying
factors that result in changes, and does not represent the transaction cash flows which are settled on a net
basis as described in the Statement of Cash Flows:
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WisdomTree Foreign Exchange Limited
Notes to the Financial Statements (Continued)
7.
Currency Transactions (continued)
The Currency Transactions are unfunded currency transactions with terms corresponding to the terms of
Currency Securities. The Currency Transactions are made up as follows:
The daily payment amount constitutes a derivative which is calculated in respect of each Currency
Transaction on each day to reflect the movement in the relevant currency index and this amount will be
payable by either the Company or the Currency Transaction Counterparty.
8.
Currency Securities
Whilst the Currency Securities are quoted on the open market, the Company’s ultimate liability relates to its
contractual obligations to issue and redeem Currency Securities at set prices on each trading day. These
prices are based on agreed formulae, and are equal to the published net asset value (“NAV”) of each class of
Currency Security. Therefore, the actual contractual issue and redemption of Currency Securities occur at a
price that corresponds to the fair value of the Currency Transactions. As a result, the Company has no net
exposure to gains or losses on the Currency Securities and Currency Transactions.
The Company measures the Currency 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 Currency 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:
As at 31 December
20212020
USDUSD
The Contractual Values and changes thereof during the year based on the contractual settlement values are:
As at 31 December
20212020
USDUSD
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WisdomTree Foreign Exchange Limited
Notes to the Financial Statements (Continued)
8.
Currency Securities (continued)
The gain or loss on the difference between the value of the Currency Transactions and the fair value of
Currency Securities would be reversed on a subsequent redemption of the Currency Securities and closure
of the corresponding Currency Transactions. Refer to note 15 for the non-statutory and non-GAAP
adjustments which reflect this reversal.
As at 31 December 2021, there were certain Currency 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 Currency Securities is USD 215,636
(2020: USD 377,230).
•
The amount payable as a result of unsettled redemptions of Currency Securities is USD nil (2020:
USD 3,196,435).
The below tables shows a reconciliation of changes in the Currency Securities, being liabilities arising from
financing activities:
The below tables shows a reconciliation of the movement on financing activities:
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WisdomTree Foreign Exchange Limited
Notes to the Financial Statements (Continued)
9.
Trade and Other Payables
As at 31 December
20212020
USDUSD
ManJer Fees Payable-271,274
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.
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WisdomTree Foreign Exchange Limited
Notes to the Financial Statements (Continued)
11.
Related Party Disclosures (continued)
The following balances were due from HoldCo at the year-end:
As at 31 December
20212020
USDUSD
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 in
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 135,592
(2020: GBP 135,592), of which GBP 33,898 (2020: GBP 33,898) was outstanding at the year end.
Peter Ziemba and Stuart Bell are executive officers of WisdomTree Investments, Inc.
12.
Financial Risk Management
The Company is exposed to a number of risks arising from its activities including credit risk, liquidity risk,
settlement 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 information provided below is
not intended to be a comprehensive summary of all the risks associated with the Currency Securities and
investors should refer to the most recent Prospectus for a detailed summary of the risks inherent in investing
in the Currency Securities. Any data provided should not be used or interpreted as a basis for future forecast
or investment performance. The Currency 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.
(a)
Credit Risk
Credit risk primarily refers to the risk that holders of Currency Securities who have entered into an authorised
participant agreement with the Company (“Authorised Participants”) or the Currency Transaction
Counterparty will default on their contractual obligations resulting in financial loss. Each class of Currency
Security is issued under limited recourse arrangements whereby the holders have recourse only to the
relevant Currency Transactions (held to support the Currency Securities) and not to the Currency
Transactions of any other class of Currency Securities or to the Company, therefore limiting the credit risk of
the Company in connection with the issue of the Currency Securities.
The Company has entered into a facility agreement with Morgan Stanley enabling the Company to create
and cancel Currency Transactions on an on-going basis. Morgan Stanley is currently the only Currency
Transaction Counterparty. If Morgan Stanley discontinued the provision of Currency Transactions and the
existing Currency Transactions expired without a replacement Currency Transaction Counterparty being
appointed, the Company would be required to redeem the outstanding Currency Securities. There are
compulsory redemption provisions as outlined in the prospectus that can be triggered by the Company or the
Currency Transaction Counterparty in certain circumstances whereby a compulsory redemption of all
Currency Securities in issue would be undertaken. The total carrying amount of the amounts receivable
awaiting settlement and trade and other receivables best represent the maximum such 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.
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WisdomTree Foreign Exchange Limited
Notes to the Financial Statements (Continued)
12.
Financial Risk Management (continued)
(a)
Credit Risk (continued)
Cash received by the Company linked to Currency Transactions entered into with a Currency Transaction
Counterparty is used to enter into a USD, GBP or EUR denominated daily repurchase transaction with the
Currency Transaction Counterparty in exchange for eligible collateral on the terms described in the Company’s
Prospectus. On each day the Currency Transaction Counterparty is required to pay back the USD, GBP and EUR
amounts in exchange for the eligible collateral held the previous day, which allows the Company to enter into new
daily repurchase transactions in exchange for eligible collateral required on that day, however in accordance with
the terms of a supplemental agreement to the Collateral Administration Master Agreement those new daily
repurchase transactions can be paired with maturing deals on the previous daily repurchase transactions meaning
that the net amounts (in each of USD, GBP and EUR) are transferred each day. The daily repurchase transaction
entered into on each subsequent day is adjusted to reflect:
•
the aggregate net amount payable or receivable between the Company and the Currency
Transaction Counterparty under all Currency Transactions; plus
•
cash received in respect of the creation of further Currency Securities; less
•
cash to be paid on that subsequent day to satisfy the redemption of Currency Securities; less
•
any cash which reflects accrued but unpaid management fees.
This daily process ensures that eligible collateral (at market fair value) received from the Currency
Transaction Counterparty represents at least 100% of the value of the cash paid for the daily repurchase
transaction entered into. This eligible collateral is held in accounts with the custodian, and exists to reduce
potential credit risk if the Currency Transaction Counterparty were to default in respect of the Daily
Repurchase Transactions component of the Currency Transactions where, if the Currency Transaction
Counterparty defaults on its obligation, the Company may exercise its rights to realise such eligible collateral.
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 eligible collateral were
valued). Our eligible collateral rules reduce the risk of such a loss, but do not completely remove it.
The Company accepts the following as eligible collateral:
•
Fixed income & money market funds rated no lower than AAA.
•
Sovereign fixed income:
o
G10 and other European government bonds rated no lower than AA;
o Supranational bonds with a L-T issuer rated no lower than AAA; and
o US Agencies 100% backed by the government.
•
Securities belonging to specific indices or major benchmarks such as S&P 500 and EURO STOXX
50, and other developed market indices such as NASDAQ and STOXX 600.
Furthermore, the eligible collateral rules apply strict margins and concentration limits. Eligible collateral with a
market fair value of USD 326,480,656 was held in custody as at 31 December 2021 (2020: USD
486,610,626) in respect of the Daily Repurchase Transaction entered into on that day (calculated in
accordance with the description above). As a result of the collateral held, the Company’s credit exposure to
any Currency Transaction Counterparty in respect of Currency Transactions is intended to be limited on any
day to the aggregate of amounts related to Currency Transactions not yet settled, amounts related to
Currency Transactions not yet transferred into the Daily Repurchase Transactions and the daily payment
amounts due but not settled. Accordingly, no impairment to reflect expected credit loss has been provided
for. The market fair value for the eligible collateral is calculated on a daily basis (by BoNY) using the most
recently available closing bid price.
The Board monitors credit risk exposure including through an assessment of the credit rating for Morgan
Stanley to ensure the Company’s exposure is managed, and has continued to do so more closely with a
focus on any the potential impact of, or developments relating to the spread of COVID-19, which is fluid and
rapidly changing.
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WisdomTree Foreign Exchange Limited
Notes to the Financial Statements (Continued)
12.Financial Risk Management (continued)
(b)
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. Liquidity risk in respect of receivables and payables related to
income and expenses is mitigated as amounts in respect of the Management Fee are retained by the
Company on a daily basis, in order for the ManJer expense accumulated (for the month, in arrears) to be
settled once invoiced, and amounts in respect of the creation and redemption fees are transferred from the
relevant counterparties directly to ManJer and there are no related cash flows through the Company.
The Currency 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.
The agreements with the Currency Transaction Counterparty include limits (both daily and in the aggregate) on the
issue and cancellation of Currency Transactions, and the Company is not obliged to issue and redeem Currency
Securities in excess of those limits under the terms of the security agreement. Furthermore, liquidity risk of the
Company is mitigated because the rights and obligations on the issue redemption of the Currency Securities and
the issue and cancellation of Currency Transactions 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. Consequently, the Company
has not presented any tabular information in respect of liquidity risk.
(c)
Settlement Risk
Settlement risk primarily refers to the risk that an Authorised Participant or the Currency Transaction
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, Currency Securities or Currency Transactions on the settlement date. The
directors feel that this risk is mitigated as a result of the cash or Currency 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.
(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 Currency Transactions (held to support the Currency Securities) and Currency
Securities, which are reversed on a subsequent redemption of the Currency Securities and the related
cancellation of Currency Transactions and will therefore not be realised. The Company is not subject to any
capital requirements imposed by a regulator and there were no changes in the Company’s approach to
capital management during the year.
The Company’s principal activity is the issue and listing of Currency Securities. These Currency Securities
are issued and redeemed as demand requires. The Company holds a corresponding number of Currency
Transactions which matches the total contractual liability of the Currency Securities issued. ManJer supplies
or arranges the supply of all management and administration services to the Company and pays all
management and administration costs of the Company, including trustee and custodian fees. In return for
these services the Company pays ManJer a fee, which under the terms of the service agreement is equal to
the aggregate of the Management Fee and creation and redemption fees earned.
As all Currency Securities in issue are supported by an equivalent number of Currency Transactions held
with the Currency Transaction Counterparty and the running costs of the Company were paid by ManJer, the
directors of the Company consider the capital management and value of its current capital resources are
adequate to maintain the ongoing listing and issue of Currency Securities.
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WisdomTree Foreign Exchange Limited
Notes to the Financial Statements (Continued)
12.Financial Risk Management (continued)
(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
The value of the Company’s liability in respect of the Currency Securities fluctuates according to the
performance of the underlying currency index and the risk of such change in price is managed by the
Company by entering into Currency Transactions with the Currency Transaction Counterparty which
match the liability. The obligation of the Company to holders of the Currency Securities is limited to the
net proceeds of the class collateral pool, which comprises rights under the Currency Transactions and
daily repurchase transactions entered into with the Currency Transaction Counterparty. Whilst the
Currency Securities are quoted on the open market, the Company’s ultimate liability relates to its
contractual obligations to issue and redeem Currency Securities at set prices on each trading day. The
Company measures the Currency 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 Currency Transactions and the fair value of Currency Securities would be reversed on a
subsequent redemption of the Currency Securities and cancellation of the corresponding Currency
Transactions. Refer to note 7 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 currency or currency index 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 currencies, and
thus the value of the Currency Securities, may vary widely due to, amongst other things, changing
supply and demand for a particular currency, government and monetary policy or intervention, interest
rate levels and global or regional political, economic or financial events. The market price of Currency
Securities is (and will remain) a function of supply and demand amongst investors wishing to buy and
sell Currency Securities and the bid or offer spread that the market makers are willing to quote. This is
highlighted further in note 15, and below under the Fair Value Hierarchy.
As described above, Currency Securities provide investors with long or short exposure to the daily
foreign exchange performance of developed and emerging market currencies measured against USD,
EUR or GBP. In particular, USD weakened across all major competitors and the Currency Securities that
are long USD dropped in value between 31 December 2020 and 31 December 2021, whilst Currency
Securities that are short USD gained in value in the same period. As examples, the WisdomTree Short
USD Long EUR 5x Daily Securities dropped 45.10% in value between 31 December 2020 and 31
December 2021, with the opposite side of the currency pair, WisdomTree Short EUR Long USD 5x Daily
Securities, gaining 45.25% in the same period.
In some cases, movements in exchange rates can be so significant that they lead to the level of a
Currency Index for any class falling to zero. Since leveraged currency indices provide leveraged
exposure to daily changes in foreign exchange rates calculated against a base value determined on the
second previous business day, it is possible that in certain highly volatile markets a leveraged currency
index may fall to zero where the foreign exchange rate moves by a large amount over the course of two
trading days or even where a particular exchange rate moves by a very large amount over the course of
one day. In these circumstances the collateralised Currency Securities for that class may become
subject to compulsory redemption at a zero price. In such situations, the collateralised Currency
Securities may be redeemed for no value and the holder of the Currency Security will receive no
payment on that redemption. Such events have not occurred during the current and prior years.
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WisdomTree Foreign Exchange Limited
Notes to the Financial Statements (Continued)
12.Financial Risk Management (continued)
(e)Market Risk (continued)
i)
Price Risk (continued)
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 currencies and hence
the prices of the Currency 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 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. The directors’
consideration in respect of the going concern position of the Company is set out in note 2.
ii)
Interest Rate Risk
The Company holds custody accounts with BoNY and this is where the cash received in connection with
the issue of Currency Securities and received under the Currency Transactions is held. The majority of
such cash is used to enter into daily repurchase transactions with the Currency Transaction
Counterparty. The pricing of the Currency Transactions or the Currency Securities takes into account the
incremental capital enhancement component of the Currency Security, which includes the impact of
interest rates. This incremental capital enhancement component of the Currency Transactions and
Currency 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 Company has exposure to currency risk as the Currency Securities provide investors with long or
short exposure to the daily foreign exchange performance of developed and emerging market currencies
measured against USD, EUR or GBP. However, 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 Currency Securities
are matched economically by corresponding losses or gains attributable to the Currency Transactions.
(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 Currency Transactions and Currency Securities, respectively,
relates to its contractual obligations to issue and redeem Currency Securities at set prices on each trading
day. The fair value of each creation and redemption of Currency Securities is recorded using the using the
price calculated based on the formula set out in the Prospectus. 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
Currency Securities is matched by movements in corresponding Currency 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.
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WisdomTree Foreign Exchange Limited
Notes to the Financial Statements (Continued)
12.Financial Risk Management (continued)
(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.
The Company is required to utilise the available on-market price as the Currency Securities are quoted and
traded on the open market. Where the market on which the Currency Securities prices are quoted is
determined to be active at the relevant reporting date, the Currency Securities are classified as Level 1
financial liabilities. Where the market on which the Currency Securities prices are quoted is determined to be
inactive at the relevant reporting date, the Currency Securities are classified as level 2 financial liabilities.
The Company values the Level 2 Currency 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 Currency Transactions relate to its contractual obligations to issue and
redeem Currency 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 Currency Security.
Therefore, Currency Transactions are classified as level 2 financial assets, as the Company’s asset 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 Currency Securities and the Daily Payment Amount component of Currency Transactions 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.
The Daily Repurchase Transactions component of Currency Transactions totalling USD 326,348,735 (2020:
USD 457,341,214) is recognised at amortised cost, in line with the Company’s accounting policy. The fair
value of the Daily Repurchase Transactions is considered to be approximately equal to its carrying value due
to the daily maturity. The collateral consists of level 1 financial instruments.
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WisdomTree Foreign Exchange Limited
Notes to the Financial Statements (Continued)
12.Financial Risk Management (continued)
(g)Fair Value Hierarchy (continued)
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 Currency 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
Currency 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.
As at 31 December 2021, Currency Securities with a fair value of USD 6,548,548 (2020: USD 1,154,628)
were transferred from Level 1 to Level 2, and Currency Securities with a fair value of USD 572,869 (2020:
USD 33,453,517) were transferred from Level 2 to Level 1.
13.Ultimate Controlling Party
In accordance with the disclosure requirements of IFRS the directors have determined that no entity meets
the definition of immediate parent or ultimate controlling party. The holder of issued equity shares is HoldCo,
a Jersey registered company. WisdomTree Investments, Inc is the ultimate controlling party of HoldCo.
14.Events Occurring After the Reporting Period
On February 24, 2022, Russia engaged in military actions in the sovereign territory of Ukraine. 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. Whilst there are no Currency Transactions (and therefore
no Currency Securities) with an exposure to Russian Roubles, Belarusian Rubles or Ukrainian Hryvnia, the Board
will further assess the impact on the fund’s portfolio operations and valuation and will take any potential actions
needed, as facts and circumstances are subject to change and may be specific to
investment strategies and jurisdictions.
There have been no 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 Currency Transactions (held to support the
Currency Securities) and Currency 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 Currency Transactions and the price of Currency Securities. The Statement of
Changes in Equity also reflects the fair value movements on both the Currency Transactions (held to support
the Currency Securities) and the Currency Securities.
These gains or losses on the difference between the value of the Currency Transactions (held to support the
Currency Securities) and the price of Currency Securities would be reversed on a subsequent redemption of
the Currency Securities and cancellation of the corresponding Currency Transactions. Furthermore, each
class of Currency Security is issued under limited recourse arrangements whereby the holders have
recourse only to the relevant Currency Transactions (held to support the Currency Securities) and not to the
Currency Transactions of any other class of Currency Security or to the Company. As a result, the Company
does not make gains from trading in the underlying Currency Transactions (held to support the Currency
Securities) and, from a commercial perspective (with the exception of the impact of Management Fees)
gains and losses in respect of Currency Transactions (held to support the Currency Securities) will always be
offset by a corresponding loss or gain on the Currency Securities and the Company does not retain any net
gains or losses.
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WisdomTree Foreign Exchange Limited
Notes to the Financial Statements (Continued)
15.
Non-GAAP and Non-Statutory Information (continued)
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
Currency 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
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WisdomTree Foreign Exchange 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 Currency Transactions and the price of Currency Securities.
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www.wisdomtree.eu