WisdomTree Foreign Exchange Limited
Registered No: 103518
Annual Report and Audited Financial Statements for the
Year ended 31 December 2023
Management and Administration
1
Directors’ Report
2-11
Statement of Directors’ Responsibilities
12
Independent Auditor’s Report
13-20
Statement of Profit or Loss and Other Comprehensive Income
21
Statement of Financial Position
22
Statement of Cash Flows
23
Statement of Changes in Equity
24
Notes to the Financial Statements
25-44
www.wisdomtree.eu
Directors
Administrator
Registered Office
Registrar
Manager
Trustee
Auditor
Currency Transaction Counterparty
Collateral Custodian
Jersey Legal Advisers
Company Secretary
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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 2023.
Directors
The names and particulars of the directors of the Company during and since the end of the financial year are:
Directors’ Interests
No director has an interest in the Shares of the Company as at the date of this report.
Principal Activities
The Company’s principal activity is the issue and listing of 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 also 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.
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.
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Principal Activities (continued)
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 13 November 2023. As at 31 December 2023 the Company had
the following number of classes of Currency Securities in issue and with listings, in aggregate, admitted to
trading on the following exchanges:
The Company continuously reviews its product set to ensure that it provides compelling and differentiated
investment offerings within the current ETP landscape. As a result of a comprehensive review and after
carefully evaluating factors like the investor’s best interests, market demand and competitive positioning, the
Company decided to effect the compulsory redemption of certain of the Company’s products (WisdomTree
Long EUR Short USD 5x, WisdomTree Short EUR Long USD 5x, WisdomTree Long EUR Short GBP 5x,
WisdomTree Short EUR Long GBP 5x, WisdomTree Long USD Short GBP 5x, and WisdomTree Short USD
Long GBP 5x (collectively the “Affected Securities”)). The Company notified the Security Holders on 9 October
2023 that the Affected Securities would be Compulsorily Redeemed on 10 November 2023.
As at 31 December 2023, the fair value of assets under management amounted to USD 280.7 million (2022:
USD 394.3 million).
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 NAV 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 NAV of the Currency Transactions and the price of Currency Securities.
The Company recognises its financial assets (Currency Transactions) and financial liabilities (Currency
Securities) at fair value in the Statement of Financial Position. 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 and 8 to these financial statements.
The Company’s exposure to risks is disclosed in note 12 to the financial statements.
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Review of Operations (continued)
The Company is entitled to a management fee which is calculated on a daily basis:
3* and 5* Leveraged Currency Securities have a management fee rate of 0.98% per annum;
CNY Currency Securities have a management fee rate of 0.59% per annum; and
All remaining classes of Currency Securities have a management fee rate of 0.39% per annum.
The Company is also entitled to apply creation and redemption fees on the issue and redemption of Currency
Securities. During the year, the Company generated income from creation and redemption fees, management
fees and bank interest as follows:
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 (2022: 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.
Ukraine Invasion
Russia has continued military action in the sovereign territory of Ukraine throughout the year ended 31
December 2023 (the “Crisis”). The Crisis has resulted in the implementation of sanctions and further actions by
governments. Whilst there are no Currency Transactions (and therefore no Currency Securities) with an
exposure to Russian Roubles, Belarusian Rubles or Ukrainian Hryvnia, the board of directors (the “Board”) will
further assess the impact on the Company’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.
As the Crisis continues, the Board also continues to closely monitor and assess the impact on the Company’s
portfolio operations and valuation and will take any further actions needed or as required under the terms of the
Prospectus, as facts and circumstances are subject to change and may be specific to investment strategies
and jurisdictions.
Future Developments
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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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 net reported position on balance sheet, including in instances where a deficit is
reported, is not considered to impact the going concern position of the Company as this position results solely
due to the unrealised gains or losses on Currency Transactions and Currency Securities due to the accounting
measurement basis applied in accordance with IFRS. As Currency Transactions are held to support Currency
Securities, any deficit or surplus reported on unrealised positions would be reversed on a subsequent
redemption of the Currency Securities and the related transfer of Currency Transactions. A reported deficit is
not considered indicative of any issues relating to solvency of the Company and the directors are satisfied that
any obligations arising in respect of the Currency Securities can be managed in accordance with the terms of
the applicable Prospectus. The directors consider the operations of the Company to be ongoing, with a
reasonable expectation that the Company has adequate resources to continue in operational existence until at
least 30 April 2025, and accordingly these financial statements have been prepared on the going concern
basis.
Corporate Social Responsibility
Sustainability and corporate responsibility are embedded throughout the business of the of WisdomTree, Inc
and its subsidiaries (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 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 2023.
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.
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Dividends
There were no dividends declared or paid in the year (2022: 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.
Directors’ Remuneration
No director has a service contract with the Company. The directors of the Company who are employees within
the WisdomTree, Inc group do not receive separate remuneration in their capacity as directors of the Company.
The directors of the Company who are employees of R&H Fund Services (Jersey) Limited (“R&H” or the
“Administrator”) do not receive separate remuneration in their capacity as directors of the Company, however
R&H receives a fee from ManJer which includes services in respect in respect of the Company, including for the
provision of directors who are employees of R&H.
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.
Principal Risks and Uncertainties
The Currency Securities provides 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.
Any movements in value of those Underlying Assets backing the Currency Securities are wholly attributable to
the holders of the Currency Securities, therefore 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 the ManJer Fee,
which results in the Company recognising a result before fair value movements of nil for each period. As a
result, the principal risks and uncertainties to which the Company is exposed has not materially changed during
the year ended 31 December 2023.
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.
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.
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Principal Risks and Uncertainties (continued)
The contractual value (at NAV) of the Currency Securities as at 31 December, and the movement over the period amounted to:
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Principal Risks and Uncertainties (continued)
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Principal Risks and Uncertainties (continued)
* As noted under ‘Review of Operations’ above, these securities were compulsory redeemed on 10 November 2023.
Whilst the table above reflects the NAV at 31 December 2023 and 31 December 2022, together with the movement, this does not reflect the recommended holding
period for Currency Securities, which in some cases is one day. Further information on the contractual value (at NAV) of the Currency Securities on a daily basis can be
found on the WisdomTree website (https://www.wisdomtree.eu/en-gb/products).
Additional information on other financial and operational risks and uncertainties faced by the Company, including further details surrounding the value of Currency
Securities and the Currency Transactions are disclosed in note 12 to the financial statements.
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Principal Risks and Uncertainties (continued)
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.
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.
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 corporate governance framework implemented and constitution of the Board is
such that it is considered unnecessary to identify a senior non-executive director.
The constitution of the Board is disclosed on page 1. The Board meets regularly as required by the operations
of the Company, but at least quarterly to review the overall business of the Company and to consider matters
specifically reserved for its review.
Internal Control
During the year the Company did not have any employees or subsidiaries, and there is no intention that this will
change. The Company, being a special purpose company established for the purpose of issuing 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.
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 related party companies
issuing exchange-traded products.
The Board having reviewed the effectiveness of the internal control systems of the Manager and the
Administrator, does not consider that there is a need for the Company to establish its own internal audit
function.
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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
17 April 2024
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The directors are responsible for preparing the financial statements in accordance with applicable law and
regulations.
Company law requires the directors to prepare financial statements for each financial year. Under that law they
have elected to prepare the financial statements in accordance with International Financial Reporting
Standards (“IFRSs”) as issued by the International Accounting Standards Board (“IASB”) and applicable law.
Under company law the directors must not approve the financial statements unless they are satisfied that they
give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that
period. In preparing these financial statements, the directors are required to:
select suitable accounting policies and then apply them consistently;
make judgements and estimates that are reasonable and prudent;
state whether applicable accounting standards have been followed, subject to any material departures
disclosed and explained in the financial statements;
assess the Company’s ability to continue as a going concern, disclosing, as applicable, matters related
to going concern; and
use the going concern basis of accounting unless they either intend to liquidate the Company or to
cease operations, or have no realistic alternative but to do so.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain
the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the
Company and enable them to ensure that the financial statements comply with the Companies (Jersey) Law
1991. They are responsible for such internal control as they determine is necessary to enable the preparation
of financial statements that are free from material misstatement, whether due to fraud or error, and have
general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the
Company and to prevent and detect fraud and other irregularities.
The directors are responsible for the maintenance and integrity of the corporate and financial information
included on the Company’s website. Legislation in Jersey governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions.
With regard to Directive 2004/109/EC, amended by Directive 2013/50/EU (collectively the Transparency
Directive), the Central Bank (Investment Market Conduct) Rules of the Central Bank of Ireland and the
Disclosure Guidance and Transparency Rules of the Financial Conduct Authority, the directors confirm that to
the best of their knowledge that:
the financial statements for the year ended 31 December 2023 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
17 April 2024
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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 2023 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
material accounting policy information. 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 2023 and of
its profit for the year then ended;
►
have been properly prepared in accordance with IFRS;
►
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 2025. Management’s assessment has focussed on
a combination of;
►
Assessing the ongoing viability of the company through continued involvement of its Currency
Transaction Counterparty 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 management 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 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 and AUM based costs which supports management’s
assumption that the Issuer Platform is able to absorb heightened levels of volatility in AUM.
►
We considered whether management’s disclosures, in the Annual Report and financial
statements, sufficiently and appropriately discloses information required in respect of the going
concern assumption applied through consideration of relevant disclosure standards.
Based on the work we have performed, we have not identified any material uncertainties relating to
events or conditions that, individually or collectively, may cast significant doubt on the company’s ability
to continue as a going concern for a period to 30 April 2025.
Our responsibilities and the responsibilities of the directors with respect to going concern are described
in the relevant sections of this report. However, because not all future events or conditions can be
predicted, this statement is not a guarantee as to the company’s ability to continue as a going concern.
Overview of our audit approach
►
►
An overview of the scope of our audit
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality
determine our audit scope for the company. This enables us to form an opinion on the financial
statements. We take into account size, risk profile, the organisation of the company and effectiveness of
controls, changes in the business environment and the potential impact of climate change when
assessing the level of work to be performed. All audit work was performed directly by the audit
engagement team.
Changes from the prior year
There were no scoping changes compared to the prior year.
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INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF WISDOMTREE FOREIGN EXCHANGE LIMITED (continued)
Climate change
There has been increasing interest from stakeholders as to how climate change will impact companies.
The company has determined that there are no directly observed impacts of climate change on the
business due to the nature of the company and its operations. This is explained on page 5 in the
corporate social responsibility section, which form part of the “Other information,” rather than the
audited financial statements. Our procedures on these disclosures therefore consisted solely of
considering whether they are materially inconsistent with the financial statements or our knowledge
obtained in the course of the audit or otherwise appear to be materially misstated.
Our audit effort in considering climate change was focused on evaluating management’s assessment of
the impact of climate risk, physical and transition, the adequacy of the company’s disclosures in the
financial statements as set out in note 2 and conclusion that there was no further impact of climate
change to be taken into account as the material assets and liabilities are valued based on market
pricing as required by IFRS.
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)
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INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF WISDOMTREE FOREIGN EXCHANGE LIMITED (continued)
We apply the concept of materiality in planning and performing the audit, in evaluating the effect of
identified misstatements on the audit and in forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably
be expected to influence the economic decisions of the users of the financial statements. Materiality
provides a basis for determining the nature and extent of our audit procedures.
We determined materiality for the company to be US$2.81 million (2022: US$3.94 million), which is 1%
(2022: 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.
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INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF WISDOMTREE FOREIGN EXCHANGE LIMITED (continued)
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% (2022: 50%) of our planning
materiality, namely US$1.41m (2022: US$1.97m). We have set performance materiality in both periods
at this percentage in response to the value of errors identified and corrected in the financial statement
close process.
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$0.14m (2022: US$0.20m), which is set at 5% of materiality, as well as differences below that
threshold that, in our view, warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative measures of materiality
discussed above and in light of other relevant qualitative considerations in forming our opinion.
Other information
The other information comprises the information included in the annual report set out on pages 1 to 12,
other than the financial statements and our auditor’s report thereon. The directors are responsible for
the other information contained within the annual report.
Our opinion on the financial statements does not cover the other information and, except to the extent
otherwise explicitly stated in this report, we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our knowledge obtained in the
course of the audit or otherwise appears to be materially misstated. If we identify such material
inconsistencies or apparent material misstatements, we are required to determine whether this gives
rise to a material misstatement in the financial statements themselves. If, based on the work we have
performed, we conclude that there is a material misstatement of the other information, we are required
to report that fact.
We have nothing to report in this regard.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in relation to which the Companies
(Jersey) Law 1991 requires us to report to you if, in our opinion:
►
proper accounting records have not been kept by the company, or proper returns adequate for our
audit have not been received from branches not visited by us; or
►
the financial statements are not in agreement with the company’s accounting records and returns;
or
►
we have not received all the information and explanations we require for our audit
Responsibilities of directors
As explained more fully in the Statement of Directors’ Responsibilities set out on page 12, the directors
are responsible for the preparation of the financial statements and for being satisfied that they give a
true and fair view, and for such internal control as the directors determine is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to fraud or
error.
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INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF WISDOMTREE FOREIGN EXCHANGE LIMITED (continued)
In preparing the financial statements, the directors are responsible for assessing the company’s ability
to continue as a going concern, disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless the directors either intend to liquidate the company or to
cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole
are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an
audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it
exists. Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on
the basis of these financial statements.
Explanation as to what extent the audit was considered capable of detecting irregularities,
including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design
procedures in line with our responsibilities, outlined above, to detect irregularities, including fraud. The
risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one
resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional
misrepresentations, or through collusion. The extent to which our procedures are capable of detecting
irregularities, including fraud is detailed below.
However, the primary responsibility for the prevention and detection of fraud rests with both those
charged with governance of the company and management.
►
We obtained an understanding of the legal and regulatory frameworks that are applicable to the
company and determined that the most significant are those that relate to the reporting framework,
comprising IFRS and the Companies (Jersey) Law 1991. In addition, we concluded that there are
certain significant laws and regulations that may have an effect on the presentation and disclosure
of the financial statements being the applicable Listing Rules of the Central Bank of Ireland
(Investment Market Conduct) and UK Listing Authority Rules;
►
We understood how WisdomTree 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 reading board minutes to identify any non-
compliance with laws and regulations, a review of any associated reporting submitted to the
board on compliance with laws and regulations and enquiries of members of management of the
appointed administrative service provider;
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INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF WISDOMTREE FOREIGN EXCHANGE LIMITED (continued)
►
As the Company operates in the asset management industry the Audit Partner assessed the
experience of the engagement team and concluded that the team had the appropriate competence
and capabilities.
A further description of our responsibilities for the audit of the financial statements is located on the
Financial Reporting Council’s website at https://www.frc.org.uk/auditorsresponsibilities. This description
forms part of our auditor’s report.
Other matters we are required to address
►
Following the recommendation from those charged with governance, we were appointed by the
company on 3 December 2019 to audit the financial statements for the year ending 31 December
2019 and subsequent financial periods.
The period of total uninterrupted engagement including previous renewals and reappointments is 5
years, covering the years ending 31 December 2019 to 31 December 2023.
►
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: 17 April 2024
- 20 -
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 Profit / (Loss) for the Year also represented the Total
Comprehensive Income for the Year.
The notes on pages 25 to 44 form part of these financial statements
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The assets and liabilities in the above Statement of Financial Position are presented in order of liquidity from
most to least liquid.
The financial statements on pages 21 to 44 were approved and authorised for issue by the board of directors
and signed on its behalf on 17 April 2024.
Christopher Foulds
Director
The notes on pages 25 to 44 form part of these financial statements
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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. 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 also be payable by either the Company or the Currency Transaction
Counterparty. The cash flows are reported on a net basis because the cash receipts and payments relates to
items in which the turnover is quick, the amounts are large, and the maturities are short.
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, licence allowance and the
creation and redemption fees (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. These fees are disclosed in note 3.
The notes on pages 25 to 44 form part of these financial statements
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3 A non-statutory and non-GAAP Statement of Changes in Equity reflecting adjustments representing the difference between the value of Currency Transactions and the price of Currency
Securities is set out in note 15.
The notes on pages 25 to 44 form part of these financial statements
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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 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.
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 also 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)
apply 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.
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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 material 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, except for Daily Payment Amounts of Currency
Transactions and financial liabilities held at fair value through profit or loss.
The board of directors (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 2023. 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.
Material Accounting Estimates and Judgements
The presentation of financial statements in conformity with IFRSs requires the use of certain critical accounting
estimates. It also requires management to exercise its judgement in the process of applying the Company’s
accounting policies. The Company makes estimates and assumptions that affect the reported amounts of
assets and liabilities. Estimates are continually evaluated and based on historical experience and other factors,
including expectations of future events that are believed to be reasonable under the circumstances.
Significant Estimates
The directors do not consider that any significant estimates have been applied in the preparation of these
financial statements.
Significant Judgements
The key accounting judgement required to prepare these financial statements is in respect of the presentation
of non-statutory and non-GAAP adjustments to the Statement of Profit or Loss and Other Comprehensive
Income and the Statement of Changes in Equity, as disclosed in note 15.
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.
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2.
Accounting Policies (continued)
Going Concern (continued)
The net reported position on balance sheet, including in instances where a deficit is reported, is not considered
to impact the going concern position of the Company as this position results solely due to the unrealised gains
or losses on Currency Transactions and Currency Securities due to the accounting measurement basis applied
in accordance with IFRS. As Currency Transactions are held to support Currency Securities, any deficit or
surplus reported on unrealised positions would be reversed on a subsequent redemption of the Currency
Securities and the related transfer of Currency Transactions. A reported deficit is not considered indicative of
any issues relating to solvency of the Company and the directors are satisfied that any obligations arising in
respect of the Currency Securities can be managed in accordance with the terms of the applicable Prospectus.
The directors consider the operations of the Company to be ongoing, with a reasonable expectation that the
Company has adequate resources to continue in operational existence until at least 30 April 2025 (being the
period of assessment), and accordingly these financial statements have been prepared on the going concern
basis.
Accounting Standards
(a)
Standards, amendments and interpretations adopted in the year:
The following standards that have been revised, issued and became effective but are not considered
applicable to the Company:
Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors
Amendments to IAS 12 Deferred Tax
IFRS 17 Insurance Contracts
There were no other new standards, amendments and interpretations adopted in the current year that
resulted in a significant effect on these financial statements.
(b)
New and revised IFRSs in issue but not yet effective:
The Company has not applied the following new and revised IFRSs that have been issued but are not yet
effective:
Amendments to IAS 1 Presentation of Financial Statements (effective for annual periods beginning
on or after 1 January 2024)
Supplier Finance Arrangements - Amendments to IAS 7 and IFRS 7 (effective for annual periods
beginning on or after 1 January 2024)
Amendments to IFRS 16 Lease Liability in Sale and Leaseback (effective for annual periods
beginning on or after 1 January 2025)
Lack of exchangeability - Amendments to IAS 21 (effective for annual periods beginning on or after 1
January 2025)
Amendments to IAS 21 The Effects of Changes in Foreign Exchange Rates (effective for annual
periods beginning on or after 1 January 2025)
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.
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2.
Accounting Policies (continued)
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.
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 two financial instruments whose aggregate 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.
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2.
Accounting Policies (continued)
Currency Securities (continued)
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.
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 latest traded price on (or before) 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 on 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.
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2.
Accounting Policies (continued)
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.
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:
3x and 5x Leveraged Currency Securities have a management fee rate of 0.98% per annum;
CNY Currency Securities have a management fee rate of 0.59% per annum; and
All remaining classes of Currency Securities have a management fee rate of 0.39% per annum.
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
A segment is a distinguishable component of the Company that is engaged either in providing products or
services (business segment), or in providing products and services within a particular economic environment
(geographical segment), which is subject to risks and rewards that are different from those of other segments.
IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the
Company that are regularly reviewed by the Chief Operating Decision Maker (“CODM”) in order to allocate
resources to the segments and to assess their performance. The CODM has been determined as the Board.
Whilst the Company has a number of different Currency Securities in issue, the financial information reviewed
by CODM is not segregated by those different Currency Securities and therefore the Board have concluded
that these components do not meet the criteria of operating segments. Furthermore marketing of the Currency
Securities is undertaken on a centralised basis and the terms of the Currency Securities of any class rank pari
passu in all respects irrespective of stock exchange listing.
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2.
Accounting Policies (continued)
Reserves (continued)
As a result, the CODM determined that the Company is operating a single segment or product group, Currency
Securities, and one geographical segment which is Europe. Therefore the Company discloses its results on an
equivalent aggregated form and does not provide any further segmental information. 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.
3.
Result Before Fair Value Movements
Result Before Fair Value Movements for the year comprised:
Audit Fees for the year of GBP 41,332 will be met by ManJer (2022: GBP 34,399).
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 (2022: zero percent).
5.
Cash, Cash Equivalents and Overdraft Facility
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5.
Cash, Cash Equivalents and Overdraft Facility (continued)
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 as well as cash transferred out from the Daily Repurchase Transactions to facilitate the redemption of
Currency Securities awaiting settlement.
6.
Trade and Other Receivables
The fair value of these receivables is equal to the carrying value.
7.
Currency Transactions
As at 31 December 2023, 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 of cash received from the Currency Transactions (Daily Repurchase Transactions) and
held (per note 5) in respect of Currency Securities awaiting settlement is USD 1,043,463 (2022: USD
4,775,942), with a further amount receivable on Currency Transactions awaiting settlement of USD
445,176 (2022: USD nil), giving a total unsettled balance of 1,488,639 (2022: USD 4,775,942).
The amount payable on Currency Transactions (Daily Repurchase Transactions) awaiting settlement
is USD 390,818 (2022: USD nil).
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7.
Currency Transactions (continued)
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:
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.
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8.
Currency Securities (continued)
The fair values and changes thereof during the year based on prices available on the open market as
recognised in the financial statements are:
The Contractual Values and changes thereof during the year based on the contractual settlement values are:
The gain or loss on the difference between the value of the 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 2023, 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 on Currency Securities awaiting settlement is USD 390,818 (2022: USD nil).
The amount payable on Currency Securities awaiting settlement is USD 1,488,639 (2022: USD
4,775,942).
The below tables shows a reconciliation of changes in the Currency Securities, being liabilities arising from
financing activities:
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8.
Currency Securities (continued)
The below tables shows a reconciliation of the movement on financing activities:
9.
Trade and Other Payables
The fair value of these payables is equal to the carrying value. The ManJer Fee Payable is due to be settled
within 12 months of the year end.
10.
Stated Capital
The Company can issue an unlimited capital of nil par value shares in accordance with its Memorandum of
Association.
All Shares issued by the Company carry one vote per Share without restriction and carry the right to dividends.
All Shares are held by WisdomTree Holdings Jersey Limited (“HoldCo”).
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11.
Related Party Disclosures
Entities and individuals which have significant influence over the Company, either through ownership or by
virtue of being a director of the Company are considered to be related parties. In addition, entities with common
ownership to the Company and entities with common directors are also considered to be related parties.
Fees charged by ManJer during the year:
The following balances were due to ManJer at the year-end:
The following balances were due from HoldCo at the year-end:
No director has a service contract with the Company. The directors of the Company who are employees within
the WisdomTree, Inc group do not receive separate remuneration in their capacity as directors of the Company.
The directors of the Company who are employees of R&H Fund Services (Jersey) Limited (“R&H” or the
“Administrator”) do not receive separate remuneration in their capacity as directors of the Company, however
R&H receives a fee from ManJer which includes services in respect of the Company, including for the provision
of directors who are employees of R&H.
Steven Ross is a director of R&H Fund Services (Jersey) Limited (“R&H” or, the “Administrator”) and a partner
of Rawlinson & Hunter, Jersey Partnership, which wholly owns R&H. Christopher Foulds is a director of R&H.
During the period, R&H charged ManJer administration fees, which include the Company and other entities for
which ManJer is the Manager and R&H is the Administrator, in aggregate, of GBP 1,221,529 (31 December
2022: GBP 680,211), of which GBP 291,402 (31 December 2022: GBP 333,639) was outstanding at the period
end.
Peter Ziemba is an executive officer of WisdomTree, Inc. and Bryan Governey is European General Counsel
for the WisdomTree, Inc group.
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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 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 Currency Transactions, cash & cash equivalents, cash held for currency securities due for settlement,
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.
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).
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12.
Financial Risk Management (continued)
(a)
Credit Risk (continued)
Eligible collateral can include cash invested in fixed income and money market funds or supranational bonds
with a minimum rating of AAA, G10 and other European government bonds with minimum rating of AA, US
Agencies 100% backed by the government, or in eligible equities (that belong to specified indices that include
the major benchmarks such as S&P 500 and EURO STOXX 50, and other developed market indices such as
NASDAQ and STOXX 600). These eligible collateral rules apply strict margins and concentration limits to
reduce the risk of such a loss, but do not completely remove it. Full details of “Eligible Collateral” can be found
in the Eligible Collateral Schedule through the Company’s website.
Eligible collateral with a market fair value of USD 295,886,502 was held in custody as at 31 December 2023
(2022: USD 393,680,428) in respect of the Daily Repurchase Transaction entered into on that day (calculated
in accordance with the description above). The Currency Transactions backed by the collateral held in custody
as at 31 December 2023 was USD 278,710,950 (2022: USD 387,512,199), disclosed as Daily Repurchase
Transactions in note 7. 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 Morgan Stanley
(Morgan Stanley: A+ (2022: A+) (Fitch, 30 October 2023), in order 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 both the Ukraine Crisis.
(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.
(b)
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.
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12.
Financial Risk Management (continued)
(c)
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.
(d)
Market Risk
Market risk is the risk that changes in market prices (such as index prices, interest rates and foreign exchange
rates) will affect the Company’s income or the value of its financial instruments held or issued.
i)
Price Risk
As described above, 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. 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.
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12.
Financial Risk Management (continued)
(d)
Market Risk (continued)
(i)
Price Risk (continued)
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.
Ukraine Invasion
Russia has continued military action in the sovereign territory of Ukraine throughout the year ended 31
December 2023 (the “Crisis”). The Crisis has resulted in the implementation of sanctions and further
actions by governments. 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 Company’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.
As the Crisis continues, the Board also continues to closely monitor and assess the impact on the
Company’s portfolio operations and valuation and will take any further actions needed or as required under
the terms of the Prospectus, as facts and circumstances are subject to change and may be specific to
investment strategies and jurisdictions.
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.
(e)
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 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.
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12.
Financial Risk Management (continued)
(e)
Sensitivity Analysis (continued)
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.
(f)
Fair Value Hierarchy
The levels in the hierarchy are defined as follows:
Categorisation within the hierarchy is determined on the basis of the lowest level input that is significant to the
fair value measurement of each relevant asset/liability.
The Company is required to utilise the available on-market price as the 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 latest traded 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) measured at fair value are as shown below:
The Currency Securities and the Daily Payment Amount component of Currency Transactions are recognised
at fair value upon initial recognition and revalued to fair value in line with the Company’s accounting policy.
There are no assets or liabilities classified in level 3.
The Daily Repurchase Transactions component of Currency Transactions totalling USD 278,710,950 (2022:
USD 387,512,199) 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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12.
Financial Risk Management (continued)
(g)
Fair Value Hierarchy (continued)
Transfers between levels are 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.
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 2023, Currency Securities with a fair value of USD 1,312,116 (2022: USD 981,085) were
transferred from Level 1 to Level 2, and Currency Securities with a fair value of USD 822,088 (2022: USD
5,391,484) were transferred from Level 2 to Level 1.
13.
Ultimate Controlling Party
In accordance with the disclosure requirements of IFRS the directors have determined that no entity meets the
definition of immediate parent or ultimate controlling party. The holder of issued equity shares is HoldCo, a
Jersey registered company. WisdomTree, Inc (formerly WisdomTree Investments, Inc) is the ultimate
controlling party of HoldCo.
14.
Events Occurring After the Reporting Period
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 2023 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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15.
Non-GAAP and Non-Statutory Information (continued)
The mismatched accounting values are as shown below:
To reflect the commercial results, the Company has presented below a non-GAAP and non-Statutory
Statement of Profit or Loss and Other Comprehensive Income and Statement of Changes in Equity for the
period which reflect an Adjustment from Market Value to Contractual Value (as set out in the Prospectus) of
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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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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