Annual Report and Financial Statements For the year ended ...€¦ · ANZ Australia New Zealand 4...

Annual Report and Financial Statements

For the year ended 31 March 2010

At CMC Markets we’ve always been an innovative and visionary company. We were the fi rst to execute a Forex trade online in 1996. We invented the rolling cash spread bet. We’ve always been committed to offering our customers lower trading costs. And now we need to build for the future, to attract the next generation of trader.

That’s why we’ve created a set of values that will defi ne what we do and how we do it now and into the future. Ones that will unite us as a business, set the standards and empower us to build an exceptional investment brand.

We call it 3D thinking from CMC Markets. Dream, Dare, Deliver.

Contents

Our business at a glance

Chairman’s statement

Business review

Strategic objectives

Performance review

Financial review

Principle risks and uncertainties

Governance

Directors’ report

Corporate governance report

Financial statements

Independent auditors’ report

Financial statements

Notes to the fi nancial statements

Corporate information

Global offi ces

Notice of Annual General Meeting

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CMC MARKETS PLCAnnual Report

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What we doCMC Markets is an online retail fi nancial services business which enables its customers to trade contracts for difference (CFD) or fi nancial spread betting on a range of shares, indices, foreign currencies, commodities and treasuries. The Group also provides fi nancial information and stockbroking services.

CMC Markets’ revenues arise from managing the risks and exposures generated by our customers. Our risk management strategy is based on highly automated fl ow management which dynamically hedges the majority of customer risk in order to benefi t from transactional spreads, fi nancing and commissions.

Our business model is based on providing customers, either directly or through our partners, with the best experience possible in terms of pricing, liquidity and access to markets in order to build long term customer relationships.

We constantly innovate to provide better pricing, unique features, content and tools and present real time trading andinvestment options to our customers.

Our geographical reachCMC Markets has 720 employees based in 17 offi ces on 4 continents.

EUROPE

AustriaGermany

IrelandItaly

NorwaySpain

SwedenUnited Kingdom

ASIA

ChinaJapan

Singapore

CANADA

ANZ

AustraliaNew Zealand

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Active customers represent those individual customers who have traded or held positions with CMC Markets on at least one occasion during the fi nancial year.7

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Our productsCMC Markets’ trading platforms provide access to CFD trading and spread betting on over 5,000 companies, indices, commodities, treasuries and currencies using leverage.

CFDCFDs, or contracts for difference, are agreements to exchange the difference inthe price of an underlying reference instrument (for example, a share, index or commodity) between the time a contract is opened and the time the contract is closed.

A CFD is a leveraged product which means you only need to deposit a fraction of the overall value of the trade. This has the potential to magnify profi ts as well as losses. Unlike trading in physical assets, a CFD does not allow an investor to own the underlying reference instrument.

Spread betA fi nancial spread bet allows you to bet on the direction of the price of a fi nancial instrument (for example, a share, index or commodity). When you place a spread bet you choose the instrument by which the value of the bet will be measured, the stake and the direction you expect the price to move. Your profi t or loss is calculated by multiplying your original stake and the number of points the instrument hasmoved when the bet is closed.

A spread bet is a leveraged product which means you only need to deposit a fraction of the overall value of the trade. This has the potential to magnify profi ts as well as losses. As with CFDs, a spread bet does not provide you with ownership of the underlying reference instrument. Ordinarily, profi ts from spread betting are free from capital gains tax and stamp duty in the UK and Ireland.

StockbrokingCMC Markets also offers Australian customers the ability to buy and sellASX-listed equities as well as listed funds, with customers having access to live market data and research from some of Australia’s most respected stock market analysts.

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Peter Cruddas, Executive Chairman, in our new London headquarters


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I always wanted to create an online retail fi nancial services business that would transform the way that customers trade and invest in global fi nancial markets. A proposition that is accessible to all types of retail customers but would also attract world class fi nancial institutions and become a core part of their offerings to their own retail customers. If we can achieve these aims we will become the leader in online trading and investing for the global mass market. Our new proposition has been wholly designed with the customer in mind to provide greater transparency, reliability, usability and speed of execution.

CMC Markets has been a leader and the innovator for others in our industry to follow and I am very proud of our heritage and culture that has enabled us to continue this leadership into the next phase of our growth.

The next generation of CMC Markets was launched this month with a new Group brand and trading platform for the spread bet market in the UK which we believe will revolutionise the way that customers trade in the future. I am immensely proud of this development which I believe is the most signifi cant innovation in our market since I launched CMC Markets 20 years ago and my long term vision for the Company is one step closer to being realised as we continue to redefi ne the market for online retail fi nancial services.


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Over the last year we have been focussing on building the next generation of CMC Markets and this, together with tough trading conditions and poor revenue performance in the fi rst quarter prior to the implementation of our new trading risk management strategy, has had an impact on the fi nancial results. Revenue reduced by 29% to £152.0m and EBITDA (our main profi tability measure) declined by 36% to £17.1m.

However our underlying business and customer base remained very strong and I am very pleased with our achievements, which included:

Total active customers exceeding 75,000 for the second year in succession, whilst on a monthly basis we saw an average increase of 15% in the number of customers trading. This refl ects the strategic change in focus from new to existing customers as we successfully invested in services to generate and retain loyalty in our brand;

Registering a trade count of 26 million and value of trades of £770 billion (down 14% and 17% respectively) which in comparison to the record levels achieved in the prior year is a highly respectable performance;

Signifi cant investment and successful delivery of our change programme including technology, trading risk management and corporate support functions whilst still managing to reduce our Group operating costs before exceptional items by 15% from the previous year;

A more effi cient and signifi cantly strengthened capital and liquidity base following the redemption of the outstanding £40m subordinated debt and the issue of £40m of equity capital in July 2009 and improved our liquidity by successfully securing a £50m broker funding facility from our main banking relationship. These capital and liquidity improvements will enable us to expand the business signifi cantly in the coming years.

The combined impact of the improved trading risk management strategy and investment in technology, with a consistently solid performance in the second half of the fi nancial year gives me real confi dence that we have a strong base for the coming year. I am very pleased to report that the performance in the second half of the year has been maintained in the fi rst quarter of the new fi nancial year and by comparison net operating income is up by over 300% on the fi rst quarter of 2009.

The combined impact of the improved trading risk management strategy and investment in technology, with a consistently solid performance in the second half of the fi nancial year gives me real confi dence that we have a strong base for the coming year.


Value of trades represents the notional value of customer trades in the year£7

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Over the last year we have continued to build what I believe to be the best senior management team in our industry. I made the decision to relocate back to the UK a year ago to become CEO, taking up the role vacated by Jim Pettigrew who left the business in July 2009 after two years of valuable service, and devote myself to making the business very successful in the next phase of its growth and buildingthe next generation proposition andtrading platform.

Over the last year, Doug Richards, as COO, has run the day to day activities of the business and in July 2010 he took over as CEO and I moved in to the role of Executive Chairman to enable me to focus on developing our next generation platform even further with new products and services in 2011. Doug will also be preparing the Company for a potential fl otation of the business in the coming years. Finally,Asif Adatia, our CIO, was appointed to the Board in December 2009 to refl ect the

signifi cant contribution he has made since joining from Goldman Sachs in December 2008 and the very high importance that we place on technology for our business. Our Non-executive Directors have also been a signifi cant support for the business over the past year. We appointed Simon Waugh to be Non-executive Chairman in August 2009 and he moved to the Deputy Chairman role following my appointment as Executive Chairman, but continuing to chair the Board. Jan Boomars from Goldman Sachs left his Non-executive position on the Board in July 2009 and I would like to thank him for his signifi cant contribution since December 2007. We will be in a position to announce the appointment of a further Non-executive Director in the coming months.

Our minority shareholder, Goldman Sachs, has given us full support for our strategy and the changes we have made within the Company. We will continue to work together as strategic partners and create further opportunities and value out of this relationship as we move forwards.

Outlook – CMC Markets next generationOver the next few months we will be preparing our next generation global CFD offering for launch later in the year. In 2011 we will also be launching a range of new investment products to broaden our reach

and deepen our relationship with customers in all of our global markets. All of the next generation functionality will be available for our global institutional partners in 2011 and we intend to take this service offering to a new standard in the industry. We have invested signifi cantly in leading tools for our partners and we are now launching our next generation pricing and execution services to global institutions as part of our partner offering. We already have signifi cant interest for these next generation services from partners all over the world.

I am also pleased to announce that CMC Markets will be moving itsheadquarters to a more central locationin the City of London during the summer. In many ways this is just another part of positioning CMC Markets for the future and my commitment to creating a positiveworking environment for our employees.

I said last year that I was more excited about the business then than when I started it. A year on and I feel even more optimistic for the future. Many thanks to all our great employees who have made it happen last year and for continuing to support us in achieving our strategy inthe years to come. Please continue your3D thinking to Dream, Dare and Deliver!

Peter CruddasExecutive Chairman26 July 2010


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This year saw a more subdued performance following the record revenues in the two previous years. Our historic business model generated signifi cant, albeit somewhat unpredictable, revenue streams in periods of market volatility.

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However, the year to 31 March 2010 saw consistent improvement in global share markets as world economies began a fragile recovery with volatility steadily reducing to levels last seen in 2007. In the fi rst quarter of the fi nancial year we took the decision to transition our trading risk management strategy towards a framework that would in future years be able to drive profi tability and growth in any market environment.We are investing signifi cantly in new technology, up to £75 million over three years, to create a leading risk management capability based on highly automated execution and dynamic risk management.

This has enabled us to change our risk strategy from one that relied substantially on minimal hedging of customer positions to a lower risk strategy based on highly automated fl ow management which dynamically hedges the majority of customer risk in order to benefi t from transactional spreads, fi nancing and commissions. This new risk strategy will enable us to produce a more consistent revenue stream in all market conditions.

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Strategy & prospectsOur strategy is focused on generating a scalable business through both retail and partners channels to become a signifi cantly larger fl ow and liquidity provider in our chosen markets. We will make substantial progress towards this strategy in the next fi nancial year with the launch of our next generation offering globally. This will enable us to continue to diversify and broaden our product and service propositions as well as our customer reach.

Our retail strategy is in great shape to capitalise on the future growth in UK spread bet and global CFD markets. Customers using spread bet and CFDs now have multiple choices of provider in many markets and are becoming more demanding of price and the breadth and quality of service. The design of our next generation proposition takes into account the needs and preferences of existing as well as potential customers. Our customer-centric strategy demands that we focus on service quality, value and retention. This will be developed further in the new fi nancial year with enhancements to our digital online offering and customer management in conjunction with the launch of our new global brand. Unlike many of our competitors, we reduced retail marketing spend dramatically this year to invest in programmes focused on retention of our existing customers and the development of our services for the future. We continue to maintain an active customer base in excess of 75,000 in line with the previous year which is testament to these programmes and the huge customer loyalty to our brand.

Our partners strategy is to continue to be the leading provider of spread bet and global CFDs through fi nancial institutions in our chosen markets. Our next generation service offering will allow our partners to participatein the breadth and depth of the productsand services that will be made available.

We have already invested signifi cantly in leading tools for our partners who utilise our Introducing Broker and White Label services, including account opening, servicing and reporting, so that they can understand their customers better and optimise their relationships via our technology.

We will also use the CFD format to expand our range of retail products and services to global institutions focusing on areas such as API (Application Programming Interface which allows multiple third party systems access to CMC Markets functionality), structured and investment products. This new functionality will start to be available in 2011 for all of our global institutional partners.

We have also invested signifi cantly in strong governance and the corporate functions that support our business. The investments in Finance, Operations, Risk, Compliance, Legal and Human Resources will help us ensure that future growth is highly scalable, well managed and controlled. In particular, regulatory change has and will continue to impact us in the future. We have prepared for this by making signifi cant changes throughout the Company to ensure that we have the deep understanding and strong controls that are a prerequisite at all levels of risk management in our business and by signifi cantly strengthening our capital and liquidity base.

Our strategy combined with the building blocks we have put in place in this fi nancial year means that we are in a very strong position to deliver a great customer proposition and sustainable growth intothe future.

Our strategy is focused on generating a scalable business through both retail and partners channels to become a signifi cantly larger fl owand liquidity provider inour chosen markets.

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VisionTo be the leading global online retail fi nancial services trading business.

Strategic objectiveOur aim is to provide superior shareholder returns through the consistent and sustainabledelivery of growth in our revenue and improvement to operating margins through operational excellence including product innovation, technology and customer service. We will achieve sustainable organic revenue growth by increasing our share of global fl ow and liquidity both from our existing customer base and through the acquisition of new customers in current and new markets.

Strategic enablersCMC Markets has identifi ed 6 core strategic enablers that are fundamental to the achievementof our strategic objective. These enablers will be the core factors that differentiate usin the future and which will create long term sustainable competitive advantage in ourchosen markets:

Customer championship

Product innovation

Trading risk management

Technology

Financial strength

People

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Customer championship Our ambition is to be the customer champion through delivering an unparalleled customer experience to online retail customers, both directly and through our partners. This will help maintain a loyal trading and investment community, optimal returns for our shareholders and long-term value for the business.

Our global customer championship strategy focuses on:

Culture – Creating a customer-centric culture where the fair treatment of customers is at the heart of all of our business decisions.

Customer insight – Building a clear and consistent understanding of our customers that we will use in all areas of our businessto drive better decision making.

Acting responsibly – Developing our business within the confi nes of a rigorous code of ethics and responsible business practice, supported by a signifi cant investment in education and insight.

Operational excellence – Continuing to improve structures and strategies toensure that the business is optimised for“customer championship.”

Investment in technology – Investing signifi cantly in technology and third party systems that enable continuous and sustainable fair outcomes for customers.

CMC Markets is in the process of a comprehensive brand repositioning with a very clear focus on customer championship and the continuous delivery of fair outcomes to our customers. The new multi-channel consumer focused brand will position CMC Markets as a leader in online trading and investment and drive a clear and consistent global identity refl ected and

amplifi ed through image, behaviour, product innovation and internal culture. With this customer-centric vision at the heart of ourbusiness we are confi dent that CMC Markets will become the undisputed brand of choice in all of our global markets.

Product innovationWe aim to provide customers with global access to investment opportunities anywhere, anytime to create a self directed investment community that manages markets on its own terms. We will constantly seek to innovate to provide better pricing, unique features, content and tools and present real time trading and investment options. We will continue to redefi ne real-time for customers not just in terms of trading execution but also up to the second market intelligence. Following the successful launch of our next generation UK spread bet platform in July 2010, we are preparing for the launch of our next generation global CFD offering later in the coming fi nancial year. In 2011 we will also be launching globally a range of new structured and investment products to broaden our reach and deepen our relationship with customers in all of our global markets.

Trading risk managementAt the heart of CMC Markets is a global trading risk management capability, capable of dealing with the most sophisticated retail fl ow at multi asset trading turnover levels in excess of £10bn per day. We aspire to be the global leader of pricing, execution and liquidity and this will be enabled through fully automated execution and dynamic risk management which is scalable far beyond our current levels of trading activity. We have signifi cant expertise in retail fl ow and risk management across multi asset classes and will continue tolead and innovate as we expand our products and services into the future.

Our risk management strategy is based on highly automated fl ow management which dynamically hedges the majority of customer risk in order to benefi t from transactional spreads, fi nancing and commissions. Our strategic risk appetite is to retain a minority of customer portfolio risk, transferring the majority of risk through external counterparty hedges. Risk appetite is controlled via strong governance and oversight and sophisticated controls at all times, within tightly defi ned risk parameters approved by the Board. We will continue to optimise our returns using the latest risk management techniques and in the future will also share our risk management expertise with global institutional partners in order to assist them with their own retail customer and liquidity risk management.

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Technology Technology has always been part of our DNA within CMC Markets and has won us outstanding recognition as the technology leader in our industry. Our next generation technology platform promises to go even further in this regard. On the basis of a long term vision of a much broader market opportunity with an unrivalled customer proposition and experience we decided to treat the entire programme as a green fi eld start up. This has taken us over a year to build and has been a very complex change programme. We will have invested approximately £75m in new technology by the end of the fi nancial year to 31 March 2011 as part of a three year programme to build a state of the art trading and investment platform which replaces all our current IT systems and the current MarketMaker platform. We assembled the best team not just in our industry but from leading investment banks and technology providers to realise this ambition.

Financial strengthOur objective is to continue to create a very secure capital and liquidity structure that will be appropriate for the future growth and success of the business. We aim to achieve and maintain a long term level of capital which shows a surplus of consolidated regulatory capital resources of at least 200% which we believe to be a signifi cant buffer to withstand the demands of the fi nancial fl uctuations in the markets. We also aim to maintain access to a healthy level of surplus of available liquid resources commensurate with the size of our business and the growth opportunities which exist in the future.

PeopleWith a new senior team now in place that we believe is the best in our industry,CMC Markets today feels very different. The cultural transformation we are leading is due to our talented management team and our employees that are making ithappen. We have a new mindset and passion to succeed – OK is simply not OK. This is best encapsulated by our new internal branding for employees which has been launched throughout the Group – Dream, Dare and Deliver – 3D Thinking from CMC Markets. These values unite us as a business, set the standards and empower us to create an investment brand like no other.

Our new technology was launched in July 2010 in the UK and will be rolled out globally over the new fi nancial year and beyond. Our new trading platform enhances many of the key functional levers that drive and underpin our customer championship strategy namely improved transparency, reliability, usability and speed of execution.

These initially include enhanced features for customers such as:

Automated execution – Real-time pricing using the best available sources ensures consistently competitive pricing with nore-quotes and no dealer intervention.

Risk management – With our new transaction based stop loss feature when a customer opens a new position, the platform will set a stop loss for that position equal to the margin requirement. If the customer changes the size of the position the stoploss will automatically adjust.

Usability – Placing a trade on the platform is simple. We believe that our next generation technology is the most user-friendly interface in the market.

Demo account – All customers will have access to unlimited use of a demo accountto learn more about trading, practice trades,try out new strategies and see how real market events impact prices.

Customer service – All of our customers have access to our customer management team 24 hours a day whenever themarkets are open through phone,web and chat functionality.



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Our new technology was launched in July 2010 in the UK and will be rolled out globally over the new fi nancial year and beyond. Our new trading platform enhances many of the key functional levers that drive and underpin our customer championship strategy namely improved transparency, reliability, usability and speed of execution.

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2010Net operating income


£50m

£0m

£100m

£150m

£200m

£1

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Global overviewThe majority of trades and revenues continue to be driven by our two core regions; Europe and ANZ (Australia and New Zealand). These key regions contributed 75% and 78% of the value of trades and net operating income respectively (2009: 74% and 77%). Our strategy of continuing to build in other regions is being implemented with good growth in the customer base exhibited during the past year in Asia and also through our new European offi ces in Scandinavia, Spain and Italy. This growth is expected to be sustained during the next fi nancial year resulting in further diversifi cation.

Globally total number of trades and value of trades was down 13% and 17% respectively on the prior year, refl ective of the reduction in customer activity as lower levels of market volatility reduced trading opportunities. Despite this the number of active customers was maintained at over 75,000, which is a key indicator of the overall health of the business.

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Net operating income

Breakdown by region

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ANZ

Asia

Partners

Canada

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2010Number of trades




10m

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20m

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2010Value of trades

2010Value of trades

2009Value of trades

2009Value of trades

£200bn

£0bn

£400bn

£600bn

£1tn

£800bn

£9

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£7

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2010Active customers




Number of trades

Breakdown by region

Value of trades

Breakdown by region

Active customers (000,s)

Breakdown by region

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The Group has continued to build on its success as one of the leading retail CFD providers in Europe both in its core markets and in emerging areas of opportunity.

UK and IrelandFor the UK and Ireland 2010 was a year of signifi cant investment in anticipation of the launch of CMC Markets’ next generation of spread bet platform in July 2010.

Germany and ScandinaviaIn the last quarter of the year the business relocated its main German operations from Frankfurt to Hamburg and has developed a new strategy and investment programme to coincide with the launch of the next generation CFD platform. Scandinavia is already making strong contributions to the wider European region and has signifi cant potential for the future inboth retail and partners.

Italy and SpainNew offi ce launches in Milan and Madrid are already performing ahead of initial expectations.

Across EuropeAcross Europe there was a reduction in sales and marketing spend during the year as investment was made in improving the service proposition to existing customers and developing retention programmes across the region. The success of these programmes are demonstrated by a slight increase (2%) in the number of active customers during the year. Successful retail operations are now supported by locally managed partner offerings which offer wider expansion opportunities.

2009 European revenues benefi tted from high levels of volatility combined with the previous minimal hedge risk strategy. However it was also the region most adversely impacted in the early part of the fi nancial year from lower revenues prior to the changes in the trading risk management strategy.

The market in this region is already very competitive with a number of spread bet and CFD providers but we are confi dent that we will increase our market share signifi cantly with the launch of our next generation offering across the region during the second half of2010 and targeted retail expansion including the opening of an offi ce in Paris in the autumn of 2010.

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The Group has continued to buildon its success asone of the leading retail CFD providersin Europe.

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Performance review 19

Performance review

Within ANZ, CMC Markets continues to be the dominant brand and CFD provider and we have maintained our growth strategy focused on active traders and the stockbroking business (both retail and partners).

CMC Markets is the only provider in this region to offer a combined front-end web proposition covering CFDs, physical shares, margin trading and other investment opportunities and this has had a very successful impact on the Australian retailand partners markets.

AustraliaThe Australian Stockbroking market continues to be very signifi cant due to high physical share ownership, superannuation products and tax planning. We have recently launched signifi cant partnerships with major fi nancial institutions and have a number of further opportunities in the pipeline with several other key institutions.

New ZealandRevenues in ANZ have suffered in a similar manner to the other mature markets. However we believe that with the unique offering of combined physical shares and CFD access added to the next generation platform later in this fi nancial year we will maintain our leading position in this market.

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Performance review

CMC Markets is the only provider in this region tooffer a combined front-endweb proposition coveringCFDs, physical shares,margin trading and other investment opportunities.

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Performance review

CMC Markets continues to view Asia as a signifi cant growth opportunity. The Group has a substantial presence in Japan and Singapore, plus an education centre in China, demonstrating CMC Markets’ continued commitment to the Asianregion where the CFD industry is stillin a relatively embryonic state.

JapanOur Japanese retail customer base continues to grow, consistent with our strategy and we have seen strong interest for our partners offering from major fi nancial institutions. One of the key global achievements for Japan this year was the launch of our fi rst strategic API arrangement and this opens considerable opportunity to the business as a whole going forward.

ChinaChina offers further good potential but on a much longer time scale. We will continue to focus our efforts on education services in this region and developing relationships with key stakeholders including regulators and fi nancial institutions.

SingaporeSingapore has been a huge success for CMC Markets achieving signifi cant growth rates. A regional hub for Asia has been established in Singapore to benefi t from its strategic position in the region.

Revenue has held up very well year on year and we will continue to review opportunities in other parts of Asia as the markets develop further and ensure that we continue to lead the change within this important region.

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Performance review

CMC Markets has a substantial presence in Japan, Singapore and China, demonstrating its continued commitment to the Asian region where the CFD industry is still in a relatively embryonic state.

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Performance review

We have pioneered CFDs in Canada in the same way that we did in Australia andNew Zealand and this market shows similar strong growth potential in the longer term.

CanadaDuring the fi nancial year CMC Markets obtained retail CFD licences for Quebec and Ontario with British Columbia following since the year end. This enables our Canada business to distribute CFDs to all retail customers rather than just professional investors.

Canada also provides opportunity for partners in this region given the very high concentration of fi nancial services with a small number of large domestic banks which also own many of the large online brokers. CMC Markets is in the process of developing relationships with these and some of the key non-bank aligned brokers.

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Performance review

Canada provides opportunity for partners in this region given the very high concentration of fi nancial services with a small numberof large domestic banks.

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CMC Markets is the global leader in spread bet and CFD offerings to global fi nancial institutions. CMC Markets provides its leading products and services to other fi nancial institutions that are interested in offering these trading facilities to their own customer base. Key Partner solutions include:

Hosted solutions: A bank or broker distributes to its customer base a branded version of our customer facing technology hosted and maintained by CMC Markets. The broker earns commissions and rebates from customer activity executed over the platform.

> Introducing Broker (IB): The bank/ broker markets the services of CMC Markets to its customer base. The customer signs up to CMC Markets’ Terms of Business.> White Label (WL): Bank/ Broker offers the services under its own brand and maintains the customer relationship. CMC Markets manage the back offi ce functionality on behalfof the broker on a broker branded basis.

Application Programming Interface (API) Solution: CMC Markets distributes instrument pricing to third party trading platforms which is distributed to end users to transact upon. CMC Markets receives all or an element of this fl ow back through the API on either a per trade or aggregated basis from the broker.

In addition to the core legal and technical solutions, CMC Partners is also able to offer the partner additional operational and technological support and infrastructure including:

> Outsourced sales and customer support functions;> Detailed reporting and customer analysis tools; and> Advice and consultancy on management and marketingof the partner’s CFD/SB business.

The Partners business has had the privilege of working with some of the leading fi nancial services businesses in the world over the year, supporting them and their customers and helping them to develop successful businesses in their own right. Our leadership in the Partners market will be a key factor in achieving greater success in the future.

2626

Performance review

The Partners business has had the privilege of working with some of the leading fi nancial services businesses in the world over the year, supporting them and their customers and helping them to develop successful businesses in their own right.

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Net operating incomeThe Group has reviewed its revenue recognition policy and disclosures and, as a result, has restated its revenue to disclose more clearly the relationship with introducing brokers or partners. In certain circumstances the Group pays a fee or commission to its partners based on the level of business introduced. In prior years, these commissions or fees were netted within trading revenue. In accordance with IFRS1, the Group believes that it is more appropriate to disclose revenue gross of these commissions and fees and record these fees as a deduction within net operating income. Prior year numbers havebeen restated accordingly.

Total revenue decreased by 29% to £152.0m for the year ended 31 March 2010 (2009: £213.1m). Net operating income, which is stated after deductions of rebate commissions paid to introducing partners and spread betting levies, decreased by 33% to £129.5m from £194.7m in the prior year. Following on from an historic year to 31 March 2009 where market volatility and CMC Market trading volumes hit unprecedented highs, this represented a year of change for CMC Markets. Losses in the fi rst quarter of the fi nancial year from unhedged exposures under the historic trading risk management strategy had a signifi cant adverse impact on the full year revenues. The new lower risk trading strategy implemented from the second quarter contributed to a consistent level of net operating income during the remainder of the year, but the lower levels of volatility and trade volumes meant that the business was unable to reach the record revenue level achieved in the prior year. The changes in the risk management strategy combined with the signifi cant investment in the trading and risk management platform will undoubtedly see the Group in a far stronger position in the future.F

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Operating expensesFollowing the corporate restructure that took place in the previous fi nancial year the business has benefi ted from a more effi cient operating model. The introduction of a central services operation in the UK also supports the regions and global partner network. This streamlined approach has enabled the business to become more effi cient whilst also achieving a far greater global consistency in strategic delivery. As a result the business has been able to realise operating cost savings whilst still investing heavily in new technology, products and markets.

Operating expenses excluding exceptional items decreased by 15% to £112.4m for the year ended 31 March 2010 in response to improved effi ciencies in regional offi ces as well as the results of restructuring the central services operations in London.

Staff-related expenses constitute the largest single expense of the Group. The favourable movement year on year is primarily indicative of the reduction in average headcount to 784 compared with 1,063 for the prior year. Headcount as at 31 March 2010 was 720 (2009: 879). However, the Group has been strengthening the senior management team which has offset to a certain extent the level of staff cost reductions. Overall staff-related expenses fell by 1% over the prior year.

IT expenses include the cost of maintenance of hardware and software, internet and telephone connectivity and market data costs. An increase of 41% to £13.5m from £9.6m in the prior year demonstrates the continual investment in this area and represents increases in the cost of market data to support the next generation pricing engine and strengthening IT infrastructurefor the next generation platform, alongwith support of the new offi ces inSouthern Europe.

Sales and marketing costs have decreased as a proportion of net operating income in the year to 10% from 12% last year. This refl ects the strategic change to focus on investment in service and retention of our existing customers and the decision to review the marketing strategy in preparation for the next generation spread bet platform launched in July 2010. In real terms, the cost was 45% less than in 2009 and equated to savings of £10.1m.

Premises costs account for 9% of operating expenses and have fallen by 11% to £10.1m this year from £11.4m last year. This reduction refl ects the full year benefi ts of the restructuring that took place in the previous fi nancial year with the delivery of the global operating model effi ciencies.

This reduction is also after taking account of the costs of running two London headquarters from January 2010, following the decision to move to a more central location within the City. Costs for the two properties will be incurred until September 2010 when the move to the new premiseswill be completed.

Other costs have largely decreased in line with the other expense categories, refl ecting the leaner operating structure and more effective cost control. As a result professional fees, corporate costs, travel expenses and the level of bad debt provisions have allfallen year on year.

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*Excluding exceptional items

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EBITDAEBITDA for the Group was £17.1m(2009: £26.8m) and EBITDA margin was 13.2% (2009: 13.8%). Whilst this was lower than we would have hoped it does refl ect the signifi cant adverse revenue results within the fi rst quarter prior to the change in risk management strategy. The new strategy and the positive impact from the restructuring programme undertaken in the previous fi nancial year has provided astrong foundation for future growth and earnings quality.

TaxationFor the year ended 31 March 2010the Group taxation credit was £3.8m(2009: charge of £0.3m). The current year credit benefi ted from fewer disallowable items than in the prior year. Full detailsof the tax charge are set out in note12 of the fi nancial statements.

Balance sheet andregulatory capital

The Group has taken steps during the course of the year to strengthen its capital base.Net assets increased by £31.9m to £121.6m at 31 March 2010 (2009: £89.7m). This increase was largely due to £40.0m proceeds from the issue of ordinary share capital in July 2009.

In line with the Group’s trading risk management objectives, the Group has increased the level of hedging activity. Consequently, amounts due from brokers included within current assets have increased by £80.5m to £99.7m at 31 March 2010 (2009: £19.2m).

CMC Markets is supervised on a consolidated basis by the UK’s Financial Services Authority and the issue of additional shares has enabled the Group to improve its regulatory capital position. The Group maintained a signifi cant surplus capital over the regulatory requirement throughout the year. At 31 March 2010 the capital resources represented 158% (2009: 137%) of the Capital Resources Requirement, demonstrating good progress towards the objective of at least 200%. See note 4 to the fi nancial statements for further details.

Financial review

The Group has taken steps during the course of the year to strengthen its capital base.

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LiquidityAt 31 March 2010 the Group held total cash balances of £73.4m(2009: £102.5m). In addition, £248.5m (2009: £196.8m) was held in segregated client money accounts for customers. The movementin Group cash is set out in the Consolidated Cash Flow Statement.The analysis of working capital is set out below:

In the medium term, positive post tax cash fl ows resulting from profi tswill lead to increased access to liquidity. In the short term, the interaction of own funds, non-segregated customer funds and amounts required to be held with hedging brokers as margin,lead to movements in working capital.

Typically, within the CFD or spread bet industry, the ability of fi rms to access customer funds is restricted by regulation and therefore broker margin requirements need to be met from own funds or other funding sources. During the year the Group sourced access to a £50m broker funding line specifi cally to meet broker margin requirements where there is insuffi cient access to own funds. The £50m funding line represents committed funding from key relationship institutions and is available to draw specifi cally against short term broker margins. The management and funding of working capital is a critical element of the Group’s liquidity management.

During the year the Group has moved to a lower risk trading strategy where the majority of customer positions are hedged and revenue is earned from transactional spreads, commissions and fi nancing. This lower risk trading strategy results in signifi cant increases in hedging activity and this is refl ected in the working capital position year on year.

Financial review

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The Group’s activities through the ordinary course of business expose it to strategic, fi nancial and operational risks.

The executive management of the CMC Markets Group is responsible for the identifi cation and assessment of risk, risk management (such as implementation of new controls or steps to mitigate risk) and risk reporting. The risk function reports to the executive management and manages the day to day implementation of the risk policies. The aims of CMC Markets’ risk function are to co-ordinate the management and reporting of these risks and to ensurethat risk management is integrated intoday-to-day business activities. In the year under review, the risk function was supervised, monitored and supported by management committees and working Groups staffed by specialists and focused on fi nancial risks, operational risks and compliance, fi nancial crime and internal audit.

The Board, through its Audit and Risk Committees, is ultimately responsible for the management of risk and the review of risk policies and procedures, the effectiveness of systems of internal control and reporting on risk management for which a review is carried out at least twice a year. Effective risk management can only manage and reduce rather than fully eliminate the risk of failure to achieve the objectives, the risk to implementation of strategy and the risk of material misstatement or loss.

Further information on the structure and workings of Board and Management committees is included in the Corporate Governance Report on pages 39–43.

CMC Markets has adopted a standard risk process, including defi ned risk appetite parameters agreed by the Board, which is widely promoted by the various standards and industry bodies (including the Instituteof Risk Management). This implements a fi ve step approach to risk management: Risk Identifi cation; Risk Assessment;

Risk Management; Risk Reporting and Risk Monitoring.

As part of the Group Risk Management Framework, the business is open to independent assurance by external audit and internal audit. The use of independent compliance monitoring and risk reviews provide additional support to the integrated assurance programme and ensures that the Group is effectively identifying, managingand reporting its risks.

The methods of assurance are summarised below:

self review: line management will periodically be expected to review processes, systems and activities to ensure that all risk management continues to be effective and appropriate;

risk review and compliance monitoring: the purpose is to confi rm the continued effectiveness of the management of risk within the business. This includes identifi cation of potential control failures;

internal audit: as part of an agreed audit program internal audit provides the Group with risk based and timely assurance on all the important aspects of the Group’s risk management control frameworks and practices. It is the responsibility of all Business Heads, where audit fi ndings are established, to provide responses within the agreed timescales which focus on addressing root causes; and

external audit: external audit reviews provide the Board, the Risk Committee, the Audit Committee, Business Heads and Risk Management with an independent overview of the quality of the Group’s risk management framework. As with internal audit reviews any findings must beresolved by Business Heads within the agreed timescales.

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The main risks associated with the Group’s fi nancial activities, and the key operational risks faced by the Group, are outlined below and details of fi nancial risk management are set out in note 4 to the fi nancial statements:

Category

Strategic risk

Financial risks

Risk

Strategic risk

Market risk

Credit risk

Liquidity risk

CMC Markets impact

The risk of adverse impact resulting from the Group’s strategic decision-making as well as failure to exploit strengths or to take opportunities.It is a risk which may cause damage or loss to the Group as a whole.

The risk that the value of the Group’s net trading position will change over any given period in such a way that negatively impacts trading revenue. This change will be due to factors outside of the control of the business such as customer behaviour, economic or fi nancial change, natural disasteror terrorist attack.

The risk of impact resulting froma CMC Markets customer defaulting against their contractual obligations or a counterparty failing to meet their obligations in accordancewith agreed terms.

The risk that there is insuffi cient available liquidity to meet ongoing obligations of the Group as they fall due.

Management and mitigation

The Board has the responsibility for setting Group strategy and maintaining oversight of the strategic risks. It has established a governance framework as set out in the Corporate Governance Report on pages 39–43, including the appointment of two independent Non-executive Directors, to ensure adherence to the strategy.

CMC Markets monitors its market price risk on customer positions against internally approved limits as defi ned in the Group’s risk appetite and hedges these customer positions based on a number of internally agreed metrics to manage its net exposure. These metrics include the size of the customer position and the volatility and liquidity of the underlying instrument in which its customers are spread betting or trading CFDs.

These positions are monitored on a global basis so all open positions held by CMC Markets’ customers are combined to calculate CMC Markets’ total net customer exposure to ensure optimal hedging decisions are made.

The diversity of the product range and global distribution of the customer base signifi cantly reduces CMC Markets’ revenue sensitivity to individual asset classes and instruments.

Stress scenarios are applied to the portfolio, comprising a number of single and combined, Company specifi c and market-wide events that refl ect the most serious adverse market shocks to which the fi rm could be subject, to assess potential fi nancial and capital impact and adequacy.

CMC Markets management of customer credit risk is signifi cantly aided by automatic liquidation on CMC Markets’ trading platform. In addition, the Group Customer Liquidation Policy and Procedure clarifi es the Group’s approach to liquidation management, and has resulted in signifi cantly improved customer liquidation times and ultimately reduced credit risk exposure.

Stressed scenarios are considered to refl ect CMC Markets’ view of potential and extreme volatility and liquidity movements and have been communicated to,challenged and approved by the Board of Directors.

It is CMC Markets policy that institutional counterparties must have pre-defi ned minimum short-term and long-term ratings.

The Group’s policy is to utilise a combination of liquidity forecasting and stresstesting to ensure that the Group retains access to suffi cient liquidity in both normaland stressed conditions. Liquidity forecasting fully incorporates the impact of liquidity regulations in force in each jurisdiction and other impediments to the free movement of liquidity around the Group, including its own policies on minimum liquidity to be retained by trading entities. Monthly stress testing is carried out on a range of individual and combined, fi rm-specifi c and market-wide, short and long term scenarios that represent plausible but severe stress events to ensure the Group has appropriate sources of liquidity in place to meet such events.

The Group has arranged a credit line to meet short term liquidity obligations to broker counterparties in the event that it does not have suffi cient access to own cash or funds from clients and to leave a suffi cient liquidity buffer to cope with stress events.

Global regulatory requirements in relation to the management of client money require that each regulated entity within the Group maintains at least the same level of liquid assets as that entity holds customer liabilities. Operating within client money regulations further ensures that suffi cient liquidity is always available to meet customer liabilities.

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Category

Operational risks

Risk

Businesscontinuity risk

Financial crime risk

Information risk

CMC Markets impact

Business continuity risks include the unavailability of employees, premises or services due to a variety of possible events, some of which are outside the Group’s control.

As a provider of Financial Services to the Retail markets the fi rm is exposed to the threat of fi nancial crime including but not limited to Fraud and Money Laundering.

Information risk is the threat to the confi dentiality, integrity and availability of information held by the Group. Protection of personal information provided by customers and employees is also a key concern. Technical and procedural controls are implemented to minimise the occurrence of information security and data protection breaches.


Business continuity risk is managed through a continuing programme of review and refi nement including:

Testing of business continuity and IT systems recovery plans through walkthroughs and exercising;

Training and awareness;

Regular key risk assessment process;

Independent monitoring including internal audit; and

Insurances are in place for both the business and employees, including property damage and business interruption insurance, 24 hour personal accident cover, healthcare insurance, income protection and life assurance.

CMC Markets adopts a risk based approach to fi nancial crime, undertaking formal and regular risk assessments across its global operations. Oversight arrangements include the Compliance, Financial Crime and Internal Audit Working Group which reports ultimately to the Exco and Group Board, whilst a Financial Crime Change Programme has been implemented to undertake enhancements across a range of fi nancial crime systems, controls, policies and procedures.

The Group’s Information Risk Framework provides policies, standards and acceptable usage guidelines to manage risk across the Group. All functions are given role based data access only, with additional requests requiring full review and sign off. Key data loss prevention initiatives implemented include restricted USB access, fi le encryption and web fi ltering, whilst the fi rm conducts ongoing reviews on system access loggingas well as live monitoring.

Principle risks and uncertainties3434


Category

Operational risks

Risk

Technology risk

People risk

Regulatory and compliance risk

Otheroperational risks

CMC Markets impact

Technology is a critical part of the Group’s business and the operations, maintenance and upgrade of systems to facilitate the constantly changing requirements of its customers is an essential process. To compete effectively in a market that is characterised by innovation in both products and services the Group must be able to anticipate, respond and deliver, in a timely and effective manner, robust and continually enhanced technology.

System failures would expose the Group to signifi cant reputation risk, potential lost revenue and complaints. Additionally, the impact on competitive advantage through inadequate systems development and implementation is a continuing operational risk.

People risk includes the loss of key skills, the impact of business restructuring on employees, the risk of loss of key individuals and inadequate development, succession or resource planning.

The Group must satisfy regulatory requirements in many jurisdictions and has implemented a programme of active monitoring to ensure that standards are met consistently. This is an integral part of the Group’s overall risk management approach.

Other operational risks include the Group’s exposure to legal and litigation risks, the failure of counterparties, manual errors and any other action or occurrence over which it has little or no control but which may have fi nancial impact or affect its reputation with customers and the business community. It also includes the strategic risks related to peer Group competition and business growth.


The Group continues to invest in increased functionality, capacity, and responsivenessof its systems infrastructure. It employs rigorous software design methodologies, project management and testing regimes to minimise implementation and operational risks.

CMC operates two primary data centres in the UK. Systems and data centresare designed for high availability and data integrity, ensuring continued serviceto customers in the event of individual equipment failures or major disasterrecovery events.

The outsourced internal audit function has signifi cant IT expertise and independently assesses IT processes and developments, whilst further assurance is gained through reliance and capacity planning and infrastructure management.

The global Human Resources function takes the lead in the identifi cation and management of these risks to ensure that a talented and motivated workforce is maintained. Initiatives include retention programmes and succession planning, as well as practical training and skills transfer programmes. Whilst the fi rm realises that staff turnover will always occur within such a competitive market, performance management and associated remuneration policies aim to mitigate this risk for key and high performing individuals, whilst the fi rm also holds key person insurance for signifi cant positions.

The Global Compliance function operates a risk based approach to manage risk consistently across all regions. This includes the ongoing identifi cation, monitoring and adoption of relevant principles and standards that are consistent with the fi rm’s values and industry defi ned guidelines. The compliance function is supported in its role by in house legal resources and dedicated compliance resources in key regional offi ces.

The Group defends its business reputation through legal process when necessary and monitors key third party and supplier relationships. In house, the Group has implemented a number of initiatives including the Signifi cant Business Change Framework, incident management processes, risk monitoring and control policies to ensure adherence to the Group’s Risk Appetite as defi ned in the Group’s Risk Register. All key processes operate under a framework of control that incorporates proper segregation of duties, review and sign off.

Principle risks and uncertainties 3535

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The Directors of CMC Markets plc present their report together with the audited fi nancial statements of the Group for the year ended 31 March 2010.

Principal activitiesCMC Markets is an online retail fi nancial services business and, through its principal subsidiaries and their branches as set out in the Corporate Governance Statement and not 16 to the fi nancial statements (‘the Group’), provides its customers the ability to trade contracts for difference (CFD) or fi nancial spread betting on a range of shares, indices, foreign currencies, commodities and treasuries. The Group also provides fi nancial information and stockbroking services.

Business reviewA detailed review of the business and anticipated future developments is contained in the Chairman’s Statement on pages 6–9 and the Business Review on pages 10–35. The Directors consider the fi nancial key performance indicators (KPI’s) to be revenue, net operating income and EBITDA. These are set out in the Consolidated Income Statement on page 48 and are discussed in the Business Review. Non fi nancial KPIs are considered to be the number of active customers, number of trades and value of trades and these are set out and discussed in the Business Review. Principal risks and uncertainties faced by the business together with an assessment of these risks and how they are reported on and monitored is set out on pages 32–35.

Objective and strategyThe Group’s vision is to be the leading global online retail fi nancial services trading business. Its strategic objective is to provide superior shareholder returns through the consistent and sustainable delivery of growth in revenue and improvement to operating margins through operational excellence including product innovation, technology and service. The strategic enablers to achieve this are set out in the Business Review on pages 12–15.

Summary of results

The results for the fi nancial year are shown in the Consolidated Income Statement on page 48. No dividends were paid during or are recommended in respect of the year.

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GeneralCapital structureThe Company’s share capital comprises ordinary shares of 25 pence each and deferred shares of 25 pence each. At 31 March 2010 there were 281,051,701 ordinary and 1,723,247 deferred shares in issue. Each ordinary share carries one vote. Deferred shares have no voting rights.

During the year:

49,993 ordinary shares were re-purchased by the CMC Markets 2007 Employee Benefi t Trust (‘the EBT’) from two Directors;

26,689,872 ordinary shares were issued and allotted;

1,163,673 ordinary shares were converted to deferred shares;

A long term equity plan, The CMC Markets Management Equity Plan 2009 (‘the MEP’), was introduced and options over an aggregate of 11,767,569 ordinary shares were awarded without charge to over 100 employees. These rights over ordinary shares may vest on or after 1 October 2012 subject to the Company meeting certain performance targets following which they become exercisable at each employees’ option; and

As part of the MEP 550,000 ordinary shares were sold to fi ve employees from the EBT. The EBT retained 772,495 ordinary shares (0.27% of the total issued ordinary shares) which are treated as own share held in trust for the future benefi t of employees of CMC Markets UK plc.

Since the year end:

Under the MEP 33,333 ordinary shares have been sold from the EBT to an employee. (This resulted in 739,162 ordinary shares – 0.26% of total issued ordinary shares – remaining with the EBT at the date of this report).

A total of 240,718 options have been awarded without charge to an employee under the MEP which are subject to the same conditions as set out above.

At the date of this report an aggregate of 11,985,306 options over ordinary shares in the Company remain outstanding subjectto the rules of the MEP.

Further details of the authorised and issued capital are disclosed in note 25 to the fi nancial statements.

Employee informationInvolvementThe Group actively encourages the participation and involvement of our employees throughout our business. As well as our Company intranet we have introduced a weekly all employee newsletter in which they are able to access and share information about the Company’s performance, key projects and initiatives. Last year we launched an all employee satisfaction survey giving our employees the opportunity to give feedback to the senior management team and become actively involved in enhancement of co-operation and performance across the Group.

Equal opportunities and disabled personsCMC Markets is an equal opportunity employer and all decisions relating to employees including training, development, career progression and recruitment applications are made solely on the grounds of an individual’s merit and ability, regardless of gender, age, marital status, family status, race, colour, nationality, religion, ethnic origin, sexual orientation or disability. Any existing employee who becomes disabled would be supported to ensure that, whenever possible, continuity of employment can be maintained.

Directors and their responsibilitiesDetails of the Directors who served throughout or for part of the year and up to the date of signing the fi nancial statements and their executive positions are set out below.

Asif Adatia – Chief Information Offi cer (appointed 26 November 2009)

Jan Boomars – Non-executive (resigned 7 July 2009)

Peter Cruddas – Executive Chairman to 1 July 2009 then Chief Executive Offi cer to 1 July 2010 and since then Executive Chairman

John Jackson – Non-executive

Jim Pettigrew – Chief Executive Offi cer (resigned 1 July 2009)

Doug Richards – Chief Operating Offi cer to 1 July 2010 (also Chief Financial Offi cer to 31 August 2009) and since then Chief Executive Offi cer

Simon Waugh – Non-executive. Appointed Chairman of the Board with effect from 1 August 2009 and, since 1 July 2010, Deputy Chairman

The Directors are responsible for preparing the Annual Report and the fi nancial statements in accordance with applicablelaw and regulations.

Company law requires the Directors to prepare fi nancial statements for each fi nancial year. The Group fi nancial statements and the parent Company fi nancial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. Under Company law the Directors must not approve the fi nancial statements unless they are satisfi ed that they give a true and fair view of the state of affairs of the Group and the Company and of the profi t or loss of the Company and Group for that period.

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In preparing these fi nancial statements,the Directors are required to:

select suitable accounting policies and then apply them consistently;

make judgments and accounting estimates that are reasonable and prudent;

state whether IFRS as adopted by the European Union has been followed, subject to any material departures disclosed and explained in the Group and Company fi nancial statements respectively; and

prepare the fi nancial statements on the going concern basis unless it is inappropriate to presume that the Company will continuein business.

The Directors are responsible for keeping adequate accounting records that are suffi cient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the fi nancial position of the Company and enable them to ensure that the fi nancial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company.

The Directors in offi ce on 26 July 2010 have confi rmed that, as far as they are aware, there is no relevant audit information of which the auditors are unaware. Each of the Directors has confi rmed that they have taken all the steps that they ought to have taken as Directors in order to make themselves aware of any relevant audit information and to establish that it has been communicated to the auditors.

The Directors are responsible for the maintenance and integrity of the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of fi nancial statements may differ from legislation in other jurisdictions.

Further information on the Board’s activities, powers and responsibilities is included in the Corporate Governance Report on pages 39–43.

Going concernHaving given due consideration to the nature of the Group’s business, the Directors consider that the Company and the Group are going concerns and the fi nancial statements are prepared on that basis. This treatment refl ects the reasonable expectation that the Group has adequate resources to continue in business for the foreseeable future and the consideration of the various risks set out on pages 32–35 and fi nancial risks described in note 4 to the fi nancial statements.

Policy on payment of creditorsIt is the policy of the Company, and each Company within the CMC Markets Group, to agree and clearly communicate the terms of payment as part of the commercial arrangements negotiated with suppliers and then to pay according to those terms based on timely receipt of an accurate invoice. The Company had no amounts due to trade creditors during the current or previous fi nancial years. Trade creditor days for the Group, based on creditors as at 31 March 2010, were 32 days (2009: 28 days).

Charitable and political donationsCharitable donations of £0.1m (2009: £8.5m) were made during the year. No political donations were made during the year (2009: £nil).

Corporate social responsibilityThe Group believes that high standards of corporate social responsibility make good business sense and have the potential to enhance returns. The nature of its business means that the Group’s main impact on the environment is energy consumption and travel, both on third party related business and by staff visiting Group’s offi ces other than their base. Energy saving measures are included in the considerations of systems design and in offi ce practices across the Group.

Acting responsibly extends to the Group’s treatment of customers, suppliers, staff and third parties.

AGMNotice of the 2010 Annual General Meeting is set out on page 97.

In addition to the ordinary business it is proposed that a resolution will be put to the meeting to approve the conversion of 366,924 ordinary shares to deferred shares in accordance with the terms of grant to employees who have now left the Group and to authorise the purchase of those shares and others previously converted to deferred shares by the Company.

Resolutions are also included in the notice of meeting to give Directors the authority for the maximum statutory period of fi ve years to allot the unissued shares of the Company and, subject to the foregoing authority being provided, to permit the Directors to issue such shares wholly for cash on a non-preemptive basis.

Independent AuditorsBaker Tilly UK Audit LLP resigned as auditors to the Company on 29 October 2009 and the Directors appointed PricewaterhouseCoopers LLP on that date to fi ll the casual vacancyso created. A resolution proposing there-appointment of PricewaterhouseCoopers LLP as the Company’s auditors and authorising the Directors to determine the auditors’ remuneration will be put to the 2010 Annual General Meeting.

By order of the Board

Graham SymondsCompany SecretaryCMC Markets plcRegistered number 514501726 July 2010

Directors’ report3838


The objectives of the governance structure are:

to satisfy the needs of the business for proper consideration and decision making;

to provide a clear management support and monitoring framework to add value to the business and identify and control risks;

to ensure good governance principles are followed including:

clear remits and defi nitions of responsibility, authority, accountability and lines of report;

provision of appropriate delegated authority;

a framework to facilitate effective checks and balances in management and oversight processes; and

to allow and encourage effective constructive challenge of the executive.

The Directors and senior management of CMC Markets are fully aware of the benefi ts of robust and effective Corporate Governance. Apart from the advantages that clarity and accountability bring to management the value it adds to commercial activities is acknowledged.

The Board has put in place a governance structure which it believes is appropriate to the operations of an online retail fi nancial services trading Group and refl ects the size and the stage of development of the business. CMC Markets plc is an unlisted public Company and is not required to meet the provisions of the Listing Rules of the UK Listing Authority or the Financial Reporting Council’s Combined Code on Corporate Governance. However, the Board is aware of the relevance of these and the Directors support best corporate governance practice and its practical application as considered suitable with regard to the Group’s operations. The structure is regularly reviewed and monitored and any changes are subject to Board approval.

Board of Directors

ExecutiveCommittee

Financial RisksCompliance,

Financial Crime,Internal Audit

Operational Risks

AuditCommittee

RiskCommittee

Management Committees

Working Groups

Board Committees

Nomination andRenumeration

Committee

CustomerStrategy

Distributionand

Partners

Productand

Trading

Governanceand Risk

Governance structure

The governance structure is regularly reviewed for effectiveness and adapted as required to fi t the needs of the Group’s businesses and their management.

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Board responsibilitiesThe Board has overall responsibility for the Group’s affairs. It comprises three executive and two independent Non-executive Directors. The calibre of all the Non-executive Directors and their number is regarded as more than capable of carrying suffi cient weight in the Board’s decision-making and to challenge the executive. The Directors believe that the Board has a balance of skills, experience and service to provide effective strategic leadership and proper governance of the Company and Group. The current composition of the Board is considered appropriate for the full and proper discharge of its responsibilities notwithstanding that the Board will be announcing the recruitment of a third Non-executive Director in the coming months. The Articles of Association of the Company do not require the Directors to retire by rotation.

The Board is responsible for the management of the Group, setting strategic aims and determining policy. Changes to the roles of some of the Directors during the year and since the year end are set out in the Directors’ Report. The roles of the Chief Executive Offi cer and Chief Operating Offi cer, which applied from 1 July 2009, and those of the Executive Chairman and CEO, applicable since 1 July 2010, are defi ned in writing and have been approved by the Board. From 1 July 2010 the Executive Chairman’s responsibility is the development of the business. From 1 August 2009, the effectiveness of the Board was the responsibility of the Non-executive Chairman and this continues to be the role of the Non-executive Deputy Chairman. Supported by senior executives the CEO is responsible for the implementation and execution of strategy and policy. The Executive Directors manage the Group’s operations on a day-to-day basis and are in frequent contact with each other in addition to attending formal Board meetings. Key performance indicators are included in the performance evaluation process for Executive Directors and other senior executives and are used in determining their remuneration.

A statement of the Directors’ responsibilities in respect of the fi nancial statements, the statement regarding the use of the going concern basis for preparation of the fi nancial statements and the disclosure of information to the auditors are included in the Directors’ report on pages 36–38.

The Board has a formal schedule of matters specifi cally reserved to it which includes:

setting strategic aims, values and standards to promote the Group’s best interests;

controling and overseeing ofbusiness management;

setting risk parameters and fi nal overallrisk management;

ensuring adequate financial andhuman resources;

meeting obligations to shareholdersand stakeholders;

providing guidan

Annual Report and Financial Statements For the year ended ...€¦ · ANZ Australia New Zealand 4...

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