Notice of AGM and Annual Report and Accounts
RNS Number: 0920Z
IG Group Holdings plc
15 September 2015
IG Group Holdings Plc ("the Company"), a global leader in online trading, announces that its Annual General Meeting (“AGM”) will be held at 10.30am on Thursday 15 October 2015 at the Company’s offices located at Cannon Bridge House, 25 Dowgate Hill, London, EC4R 2YA.
In connection with this, the following documents have been posted or made available to shareholders:
- Annual Report and Accounts for the year ended 31 May 2015 ("Annual Report");
- Notice of AGM;
- Proxy Form
In accordance with Listing Rule 9.6.1, copies of the documents listed above have also been submitted to the UK Listing Authority via the National Storage Mechanism and will shortly be available for inspection at www.Hemscott.com/nsm.do
Copies of the Annual Report and Notice of AGM are available to view on the Company's website at www.iggroup.com
In compliance with DTR 6.3.5, the following information is extracted from the Company’s 2015 Annual Report and Accounts(page references are to pages in the Annual Report) and should be read in conjunction with the Company's Full Year 2015 results announcement issued on 21 July 2015 which can be found at www.iggroup.com. Together these constitute the information required by DTR.6.3.5 to be communicated to the media in unedited full text through a Regulatory Information Service. This information is not a substitute for reading the Company’s 2015 Annual Report and Accounts in full.
OUR KEY RISKS
The key risks set out below are extracted from pages 51 to 53 of the 2015 Annual Report and Accounts and are repeated here solely for the purpose of complying with DTR 6.3.5.
The following section describes the key risks that we face and the steps that we take in order to manage these risks.
Credit risk is the risk that a counterparty fails to perform its obligations, resulting in financial loss. Our credit risk is managed on a Group-wide basis. The principal sources of credit risk to our business are from financial institutions and individual clients.
Financial institution credit risk
All financial institutions with which the Group has a relationship are subject to a credit review. Exposure limits are set and approved by the Executive Risk Committee.
We monitor a number of key metrics on a daily basis in respect of financial institution credit risk. These include balances held, change in short-term and long-term credit rating and any change in credit default swap (CDS) price.
The Group is responsible, under various regulatory regimes, for the stewardship of client monies. These responsibilities include appointing and periodically reviewing institutions where we deposit client money. Our aim is that all financial institutions holding client money and assets should have a minimum Standard & Poor’s short-term and long-term rating of A-2 and A- respectively. Where this is not possible, we set low exposure limits and seek to use the best available counterparty – preferably one that is considered locally systemic and therefore most likely to receive support. We also maintain multiple brokers for each asset class.
We monitor our exposure to financial institutions with whom the Group holds money through a daily review against financial limits and diversification criteria.
Client credit risk
Client credit risk principally arises when a client’s total deposited funds are insufficient to cover any trading losses incurred. In particular, client credit risk can arise where there are significant, sudden movements in the market, due to high general market volatility or specific volatility relating to an instrument in which the client has an open position.
We mitigate, but do not eliminate, client credit risk in a number of ways. We only accept clients that pass certain suitability criteria, and our training programme aims to educate clients in aspects of trading and risk management, as well as encouraging them to collateralise their accounts to an appropriate level. We also conduct a pre-deal credit check on every client order.
We offer a number of risk management tools that enable clients to manage their exposures, including:
- Guaranteed and non-guaranteed stops
- Limit orders
- Extended trading hours
- Trading via mobile platforms
In addition, we manage our overall credit risk exposure through real-time monitoring of client positions via our ‘close-out monitor’ (COM) and through the use of tiered margining. The COM is an automated process whereby accounts which have fallen below the liquidation threshold are automatically identified and closed.
For a small number of generally long-standing clients, we grant credit against unrealised losses, with credit terms such that any losses arising are payable immediately on the closure of transactions. Both the close-out monitor and client-initiated stops result in the transfer of market risk to the Group. Market risk arises following the closure of the underlying client position as the Group (subject to the market risk limits, discussed in the following section), may hold a corresponding hedging position that will, assuming sufficient market liquidity, be unwound.
For more information refer to note 36 to the Financial Statements.
Market risk is the risk that the fair value of financial assets and financial liabilities will change due to movements in market prices.
We manage market risk on a real-time basis, monitoring all client positions against market risk limits set by the Executive Risk Committee for ‘operational efficiency’. The Group operates within these limits by hedging our residual market risk exposure. We do not take proprietary positions based on an expectation of market movements. As a result, not all net client exposures are hedged and the Group may have a residual net position in any of the financial markets in which it offers products up to the market risk limit.
Our technology enables us to monitor our market exposure constantly and in real time. If exposures exceed our pre-agreed limits, our risk-management policy requires that we hedge the positions to bring the exposure back into line with these limits.
For more information, including our risk limits and residual exposures at 31 May 2015, refer to note 36 to the Financial Statements.
Liquidity risk is the risk that we will be unable to meet payment obligations as they fall due.
We manage liquidity risk by ensuring that we have sufficient liquidity to meet our broker margin requirements and other financial liabilities when due, under both normal and stressed conditions. We carried out an Individual Liquidity Adequacy Assessment during the year and, while this applies specifically to the Group’s FCA-regulated entities, it provides the context within which we manage liquidity throughout the business.
Due to the very short-term nature of our financial assets and liabilities, we do not have any material mismatches in our liquidity maturity profiles. Short-term liquidity ‘gaps’ can arise, due to our commitment to segregate all individual client funds. If a significant market fall occurs, and assuming our client base holds a net long position which we have hedged, we are required to fund margin payments to brokers before releasing funds from segregation. During periods of very high client activity, or of significant directional movements in global markets, we may need to fund higher margin requirements with our brokers to hedge increased underlying client positions. We do this from our own available liquidity.
At 31 May 2015 we had total available liquidity, including committed unsecured facilities and after accounting for broker margin, of £724.0 million (2014: £708.3 million). This includes the liquid assets buffer, which consists of £83.1 million of UK government securities. We hold this, as required by the FCA, to provide a safeguard in times of stress.
We monitor total available liquidity on a daily basis, including our committed unsecured facilities. We perform daily stress tests and regularly stress-test our three-year liquidity forecast to validate the level of committed unsecured bank facilities that we hold. At the year-end, these amounted to £200.0 million (2014: £200.0 million), with £120.0 million available for one year and £80.0 million available for three years. Our Japanese business, IG Markets Securities, has a ¥300.0 million liquidity facility as at 31 May 2015 (2014: ¥300.0 million).
For more information on how we calculate our total available liquidity, see note 19 to the Financial Statements.
Operational risk is the risk of financial loss due to inadequate or failed internal processes and systems. It can also arise from human error or external events that we cannot influence.
Our approach to managing operational risk is governed by the Risk Appetite Statement and Risk Management Framework. We have designed and implemented a system of internal controls to manage, rather than eliminate, operational risk.
The reliability of our client trading platforms is key to delivering our strategy, and we invest significantly in the technology infrastructure to ensure that these platforms are operationally stable, with system access being centrally controlled. Our investment supports the resilience and reliability of the platform, ensuring low levels of latency, maintaining and testing system capability under significant load and conducting penetration testing. The Executive Risk Committee reviews our Key Risk Indicators on a monthly basis, a process which includes monitoring levels of core system uptime and deal latency.
In order to ensure that we provide our clients with a consistent and uninterrupted level of service, we run a complete disaster- recovery solution. This involves a fully functional secondary site with real-time replication of all systems across the two locations and fully independent power supplies. We support these systems with ongoing business-continuity planning and regular testing.
All our IT and data security systems conform to the ISO 27001:2005 Information Security Management System standards.
Cyber risk is a constant threat in the modern online environment. We have a dedicated team which has implemented a robust, multi-layered system, providing round-the-clock monitoring and intruder-prevention controls.
We regard regulatory risk as one of our most significant risks. In short, we define regulatory risk as:
- Breach risk: the risk that one of our regulators introduces new regulations or the regulatory environment itself changes, either making our business less profitable or our products more difficult or impossible to offer
- Change risk: the risk that policy and regulation in jurisdictions where we do not currently operate remain onerous and closed to our business model, limiting our geographic expansion opportunities
- Expansion risk: the risk that we breach a regulation that applies to our business, leading to client or market detriment, sanctions, fines, reputational damage and, in extreme situations, loss of licence
We invest significant time and resources to manage and control our regulatory risk in parallel with the development of business strategy.
The regulatory environment continues to evolve, and there are a number of events, policy initiatives and proposals in development that may impact or have already impacted our sector, as follows:
- Change to UK membership in the European Union: the Group business in continental Europe is offered pursuant to the EU passporting regime for financial services. Any change to the UK’s membership status of the European Union could have an impact on how the Group is able to operate in the European Union
- French marketing restrictions: there are indications that French regulators may implement measures that would restrict the ability for firms like ourselves to advertise complex financial products to retail clients. The impact of these measures will depend on whether the measures are introduced and, if so, the form in which they are introduced. We have also seen other European regulators in markets where we operate introduce guidelines on the selling of complex products this year
- Swiss franc market dislocation: extreme market events such as was seen earlier in the year regarding the Swiss franc can result in increased regulatory scrutiny across our industry
- Financial Transactions Tax (FTT) in the European Union: the Enhanced Cooperation FTT effort, involving 11 of the 28 member states, has continued this year. We have expended significant efforts throughout the year to maintain an accurate knowledge of the status of this tax initiative, to understand the many stakeholders’ interests and views and to ensure IG’s voice is heard in the debate. It remains unclear what the ultimate outcome of the Enhanced Cooperation FTT will be, and although progress is extremely slow recent rhetoric suggests increased political will for the introduction of an Enhanced Cooperation FTT. The lack of detail makes the potential impact on our revenue from Europe very difficult to assess. We continue to monitor developments carefully
- European Markets Infrastructure Regulation (EMIR): the main impact of this legislation on our business is increased reporting requirements to trade repositories. Potentially, we will also be impacted in the medium-to-longer term by the International Organization of Securities Commissions (IOSCO), European Securities and Markets Authority (ESMA) and European Banking Authority (EBA)’s work on margin for over-the-counter trading, but the rules on this have not yet been settled
- Markets in Financial Instruments (MiFID) II: the MiFID II dossier has continued to develop this year. The MiFID II and Markets in Financial Investments Regulation (MiFIR) Level One texts were adopted last year and there has been significant work on the preparation of the detailed Level Two texts. We remain of the view that MiFID II is unlikely to pose a threat to our UK and European businesses. We continue to monitor MiFID II carefully and to take part in industry consultation where appropriate
- Packaged Retail Investments Products Regulation (PRIPS): this will impose an obligation on us from May 2016 to provide our UK and European clients with information about our products in a standardised form. We do not anticipate this having a negative impact on our business
- Monetary Authority of Singapore (MAS) regulatory framework for margined derivatives. As previously reported, in 2013 the MAS confirmed that it would push forward with its proposal to increase margin requirements for non-accredited investors on a forex trade from 2% to 5%, thereby reducing leverage from 50 times to 20 times. Although these rules have not yet been introduced, we consider that there is a good possibility that they will be introduced in the future. If they are introduced, it is intended that the rules will not apply to accredited investors, defined by virtue of their wealth or income level. We believe that the majority of IG’s revenue currently comes from clients who would qualify for accredited investor status. In addition, the use of guaranteed stops enables clients to further manage leverage levels
- Common Reporting Standard (CRS): this is being implemented in just under 100 countries (including the UK and all countries where IG has offices) to facilitate a global exchange of information on income and wealth of individuals and organisations as a measure to counter tax evasion. On-boarding processes will need to be updated to identify and report information on clients resident in countries who have already signed up or will sign up to CRS.
- Base Erosion and Profit Shifting (BEPS): The Organisation for Economic Cooperation and Development (OECD) has developed a series of action plans to address perceived international tax avoidance by high-profile multinationals. None of the action plans are expected to significantly impact the Group’s tax profile
- Foreign Account Tax Compliance Act (FATCA): reporting of accounts held outside the US by US persons, or in the Crown Dependencies and Overseas Territories by UK residents. Onboarding processes have been updated to identify clients where we have a reporting obligation and the first round of reporting is in progress
- Capital Requirements Directive IV (CRD IV) and Capital Requirements Regulation (CRR)
The European Union (EU) began implementation of Basel III in the European Union (EU) via the Capital Requirements Directive IV (CRD IV) and the Capital Requirements Regulation (CRR) on 1 January 2014. The Regulation applies directly to all member states, while the directive required implementation by the national regulator, the FCA in our case.
These measures have introduced many different requirements for us, both since implementation and over the coming years.
The main areas of relevance include:
- changes to capital requirements
- new capital buffers in the capital conservation and countercyclical buffers (phased in approach to 2019)
- introduction of the leverage ratio (measure of exposures without risk weighting)
- removal of Tier 3 capital and re-use of deferred tax assets
- changes to liquidity requirements
- introduction of liquidity coverage ratio (LCR)
- introduction of net stable funding ratio (NSFR)
- other changes, including
- new corporate governance and remuneration standards
- additional capital and liquidity reporting (COREP)
We have modelled the impact of the regulations as they currently are scheduled to be implemented and expect no significant changes to our corporate governance or remuneration structures, as well as no significant impact on our capital or liquidity position.
We seek to mitigate change risk by engaging with our regulators and policymakers as much as possible, as part of policy consultations and more generally, and also by investing in public relations programmes and ensuring we have access to up-to-date information on regulatory change.
Like change risk, we seek to mitigate expansion risk by engaging with regulators and policymakers in countries where we do not yet operate, but which are desirable targets for our future expansion. Of course, regulatory change can also represent an opportunity for our business, and we are in talks with certain regulators who are considering changing their regulations in order to allow retail derivatives trading. These discussions are still at an early stage.
Our compliance, legal and risk teams provide a robust line of defence to ensure that our processes and controls are effective in ensuring we comply with our regulatory obligations. During the year, the Group has successfully undergone a number of external reviews into key areas such as client money and information security, giving us assurance that we are managing and controlling breach risk well. As our business becomes more complex, this risk also grows, and we remain committed to increasing our investment in our framework to manage risk controls.
In summary, we work closely with our regulators to ensure that we operate to the highest regulatory standards and can adapt quickly to regulatory change. We are committed to engaging proactively with regulators and industry bodies, and will continue to support changes which promote protection for clients and greater clarity of the risks they face. However, we cannot provide certainty that future regulatory changes will not have an adverse impact on our business.
This is the risk that the Group’s conduct poses to the achievement of fair outcomes for consumers or to the sound, stable, resilient and transparent operation of the financial markets. Put another way, conduct risk is the risk that the manner in which we carry out our business causes poor outcomes for our clients or the markets.
The Board has developed a conduct risk strategy that applies across the organisation putting consumer outcomes at the heart of the business. We have undertaken and continue to undertake training to fully embed this strategy into the current business practices and culture of the Group.
RELATED PARTY TRANSACTIONS
The following information is extracted from page 151 of the 2015 Annual Report and Accounts and is repeated here solely for the purpose of complying with DTR 6.3.5.
The Directors and other members of management classified as ‘persons discharging management responsibility’ in accordance with the Financial Services and Markets Act are considered to be the key management personnel of the Group in accordance with IAS 24. The Directors’ Remuneration Report discloses all benefits and share-based payments made during the year and the preceding year to the Directors. The total compensation for key management personnel together with their connected parties was as follows:
||31 May 2015
||31 May 2014
|Short-term employee benefits
The Company had the following amounts outstanding with subsidiaries at the year-end:
||31 May 2015
||31 May 2014
|Loans to related parties
|Loans from related parties
All amounts remain outstanding at the year-end and are repayable on demand. A number of intercompany amounts were subject to offset arrangements during the year.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The following responsibility statement is extracted from the Statement of Directors' Responsibilities on page 105 of the 2015 Annual Report and Accounts and is repeated here solely for the purpose of complying with DTR 6.3.5. The statement relates to the full 2015 Annual Report and Accounts and not the extracted information presented in this announcement or the Full Year Results announcement.
The Directors are responsible for preparing the Annual Report, the Directors’ Remuneration Report and the Financial Statements in accordance with applicable law and regulations.
The Companies Act 2006 requires the Directors to prepare Financial Statements for each financial year. Under this law, the Directors have prepared the Group and parent company Financial Statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. In preparing these Financial Statements, the Directors have also elected to comply with IFRSs issued by the International Accounting Standards Board (IASB).
Under company law, the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company, and of the Group’s profit or loss for that financial year. In preparing these Financial Statements, the Directors are required to:
- Select suitable accounting policies and apply them consistently
- Make judgements and accounting estimates that are reasonable and prudent
- State whether applicable IFRSs as adopted by the European Union and IFRSs issued by the IASB have been followed, subject to any material departures disclosed and explained in the Financial Statements
- Prepare the Financial Statements on a going-concern basis, unless it is inappropriate to presume that the Company will continue in business
Legislation in the United Kingdom governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions.
The Directors are responsible for ensuring that the Company keeps adequate accounting records. These records must be sufficient to show and explain the Company’s transactions and disclose the financial position of the Company and the Group with reasonable accuracy at any time. They must also enable the Directors to ensure that the Financial Statements and the Directors’ Remuneration Report comply with the Companies Act 2006 and, as regards the Group Financial Statements, Article 4 of the IAS Regulation.
The Directors are responsible for safeguarding the assets of the Company and the Group, and for taking reasonable steps to prevent and detect fraud and other irregularities.
The maintenance and integrity of the Group’s website is also the Directors’ responsibility.
It is the Directors’ opinion that the Annual Report and Accounts, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company’s performance, business model and strategy.
Each of the Directors, whose names and functions are listed in the Corporate Governance Report, confirms that, to the best of their knowledge:
- The Financial Statements, which have been prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit of the Company and the undertakings included in the consolidation taken as a whole
- The Strategic Report and the Directors’ Report included within this Annual Report provide a fair review of the business’s development and performance, the Company’s position and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that the Group faces
On behalf of the Board:
Chief Financial Officer
21 July 2015
For further information, please contact:
Head of Investor Relations 020 7573 0026
Neil Doyle / Ed Berry 020 3727 1141 / 1046
IG is a global leader in online trading, providing fast and flexible access to over 10,000 financial markets – including shares, indices, forex, commodities and binaries.
Established in 1974 as the world’s first financial spread betting firm, IG’s aim is to become the default choice for active traders globally. It is an award-winning multi-platform trading company, the world’s No.1 provider of CFDs* and a global leader in forex, and it now offers an execution-only stockbroking service in the UK, Ireland, Germany, Austria and The Netherlands.
It is a member of the FTSE 250, with offices across Europe, Africa, Asia-Pacific, the Middle East and the US, where it offers limited risk derivatives contracts via the Nadex brand.
*Based on revenue excluding FX, published financial statements, July 2014.