Annual Report 2018
and consolidated financial statements

A unique, globally diversified FX business

LMAX Exchange Group Limited, 50 La Colomberie, St. Helier, Jersey, JE2 4QB, Channel Islands
c/o LMAX Limited, Yellow Building, 1A Nicholas Road, London W11 4AN
www.LMAX.com | info@LMAX.com | +44 20 3192 2555

Annual Report December 2018 | LMAX Exchange Group Limited

Introduction: about the LMAX Group

Delivering a transparent,
neutral, global marketplace
for all FX participants.
The LMAX Group is a global, diversified financial technology company and the leading independent
operator of multiple institutional execution venues for electronic FX and crypto currency trading.
Leading the transformation of the global FX marketplace to transparent, fair, precise andconsistent execution, the LMAX Group has been widely recognised for industry innovation andaward-winning proprietary technology.
The Group’s portfolio includes LMAX Exchange (institutional FX exchange and FCA regulated
MTF), LMAX Global (FCA regulated broker) and LMAX Digital (GFSC regulated institutional spot
crypto currency exchange).
Servicing funds, banks, brokerages, asset managers and proprietary trading firms, the Group builds
and runs its own high performance, ultra-low latency global exchange software, which includes
matching engines based in London, New York and Tokyo.

The institutional exchange for global FX
LMAX Exchange is the leading institutional exchange for electronic FX trading and an FCA
regulated MTF. Operating a central limit order book, LMAX Exchange offers streaming firm
liquidity from top tier banks and non-bank institutions, transparent price discovery, no ‘last look’
execution and full control over trading costs.

Regulated brokers for global FX
LMAX Global operates an FCA regulated broker in the UK for the electronic trading of FX, metals
and commodities. LMAX Global offers brokers and professional traders the ability to trade on the
LMAX Exchange central limit order book with tight spreads on streaming, firm limit order liquidityfrom top tier banks and proprietary trading firms.

The institutional spot crypto currency exchange
LMAX Digital is a regulated institutional spot crypto currency exchange. Based on proven,
proprietary technology from LMAX Exchange, LMAX Digital allows global institutions to acquire,
trade and hold the most liquid digital assets - BTC, ETH, LTC, BCH and XRP safely and securely.

Introduction

5

LMAX Exchange Group Limited | Annual Report December 2018

Contents
Highlights ...........................................................................................................................................................................9
CEO’s statement ...........................................................................................................................................................11
Principle risks.................................................................................................................................................................14
Statement of Director’s responsibilities in respect of the financial statements.................................18
Independent auditors’ report to the members of LMAX Exchange Group Limited ..........................19
Consolidated statement of comprehensive income.......................................................................................23
Consolidated statement of financial position ...................................................................................................24
Consolidated statement of changes in equity ..................................................................................................25
Consolidated statement of cash flows .................................................................................................................26
Notes to consolidated financial statements ......................................................................................................27
1. Accounting policies .....................................................................................................................................27
2. Profit before tax ...........................................................................................................................................33
3. Taxation............................................................................................................................................................36
4. Capital re-organisation..............................................................................................................................37
5. Intangible assets...........................................................................................................................................38
6. Property, plant and equipment...............................................................................................................39
7. Trade and other receivables ....................................................................................................................40
8. Inventories......................................................................................................................................................41
9. Cash and cash equivalents .......................................................................................................................41
10. Trade and other payables .......................................................................................................................42
11. Related party transactions ....................................................................................................................43
12. Post balance sheet event .......................................................................................................................43
13. Financial instruments ..............................................................................................................................44
14. Developments in reporting standards and implementations..................................................49
15. Registered address and country of domicile ..................................................................................51

6

Contents

Annual Report December 2018 | LMAX Exchange Group Limited

Contents
LMAX Exchange Group Limited company financial statements ...............................................................53
Company statement of comprehensive income ..............................................................................................54
Company statement of financial position ...........................................................................................................55
Company statement of changes in equity ..........................................................................................................56
Company statement of cash flows.........................................................................................................................56
Company notes to the financial statements .....................................................................................................57
1. Accounting policies .....................................................................................................................................57
2. Financial income...........................................................................................................................................57
3. Investments in subsidiaries......................................................................................................................57
4. Trade and other receivables ....................................................................................................................58
5. Cash and cash equivalents .......................................................................................................................59
6. Trade and other payables..........................................................................................................................59
7. Share capital...................................................................................................................................................59
8. Related parties ..............................................................................................................................................60
9. Post balance sheet events ........................................................................................................................60

Contents

7

Annual Report December 2018 | LMAX Exchange Group Limited

Highlights

2018 financial highlights
Shown in US$
VOLUMESVOLUMES

$tn

$tn

2.5

3.1

3.1
2.5

2018
2017

2017

2018

44.3

$m

EBITDAEBITDA$m$m

74%74%
11.6

Annual growth
Annual growth

2018
2017

2017

2018

46%

2018

20.2

20.2

11.6

35%

2018

226

$m

163

31%31%

2018
2017

CLIENT FUNDS
CLIENT FUNDS 226$m

163

38%38%

Annual growth
Annual growth
2017

2018
2017

Annual growth
Annual growth

EBITDA MARGIN
EBITDA MARGIN
46%
35%

39.8

33.2

33%33%
2017

50.1

Annual growth
Annual growth

GROSS PROFITGROSS PROFIT 44.3
33.2

50.1

26%26%

Annual growth
Annual growth

$m

$m

39.8

21%21%
2017

REVENUES REVENUES$m

Annual growth
Annual growth
2018
2017

2018

2017

2018
2017

2018

› Gross revenues of US$50.1m, up 26% from 2017
› Gross profit of US$44.3m, up 33% from 2017
› Statutory EBITDA of US$20.2m, up 74% from 2017
› Operating profit of US$12.7m, up 117% from 2017
› EBITDA margin of 46%› Client funds held of $226m, up 38% from 2017
› Total trading volume across exchanges in excess US$3 trillion, up 21%› Continued growth of international exchanges
Trading volumes on New York (NY4) up 267% from 2017
Trading volumes on Tokyo (TY3) up 60 % from 2017

Highlights

9Annual Report December 2018 | LMAX Exchange Group Limited

CEO’s statement

Overview
LMAX Exchange Group Limited (“the Group” or “LMAX”) has grown rapidly
in recent years and has established three core regulated businesses –LMAX Exchange, LMAX Global and LMAX Digital, developing a strong
global footprint with businesses in the UK, Eurozone, US and AsiaPac. In theyears ahead, we intend to further develop these businesses and focus ondelivering the opportunities and efficiencies of operating as an integrated
Group, to benefit our customers and to drive sustainable long-term growth.

David Mercer, CEO

Last year our industry was swept by consolidation and changes in market structure. Against thisbackground, we emerged as the sole remaining independent exchange for global FX trading.
Clients clearly value our independent status and distinctive business model focused on providing
consistent, best-in-class service.
LMAX successfully managed through a difficult trading environment, that also saw FX volatility on
major currencies fall to multi-year lows, with annual growth across all KPI’s.
LMAX KPI’s (USD)

2017

2018

GrowthVolumes (bn)

2.5

3.1

21%

Client Funds (m)

163

226

38%

Revenue (m)

40

50

26%

Gross Profit (m)

33

44

33%

EBITDA (m)

12

20

74%

Along with the strong results achieved, we also managed to pursue strategic initiatives. In February
2018, the Group completed a leveraged buyout, bringing 95% of LMAX Exchange Group undermanagement ownership. This transaction confirms the Company’s independent status at a timeof rapid industry consolidation among OTC FX execution venues, which has seen large exchangegroups expand into the asset class.
Another notable achievement was the launch of LMAX Digital, our institutional exchange, solely
for crypto currency trading. This was created to fill a gap in this market by providing institutions
with a trading platform they can trust, with deep liquidity, security of funds, and high performance,
proven technology. This is not a case of joining in with the crypto currency fad, we firmly believethat blockchain technology will revolutionise capital markets in decades to come, though it
might be some years before crypto assets are readily accepted and traded by the world’s biggest
institutions. Furthermore, LMAX Digital diversifies our overall product offering, something which isespecially important at times of sporadic FX volatility when investors seek alternative asset classes.
During the year, we managed to navigate the complexities of the risk of a no-deal Brexit in a waythat put our clients’ interests first, as well as supporting financial stability of the market as a whole.
We have also ensured that the impact of this scenario on the business is kept to a minimum withthe recent acquisition of a regulated broker in Cyprus.
CEO’s statement

11

LMAX Exchange Group Limited | Annual Report December 2018

CEO’s statement
As our Asia and US-based businesses continue to thrive, it is clear that Southern Europe and the
Middle East should be the next areas of focus for us in terms of growth. This deal ensures that
following the Brexit outcome our services will remain unaffected, whilst giving us the ability toserve clients in new established markets.
Strategic goals› Increase market share› Maintain a quality service to clients› Broaden Global reach› Technical innovation› Investment in research and development› Attract, develop and retain the best people
The Exchange business continues to be of core importance to the Group and, due to the scale of
the attainable market, presents the biggest opportunity for future volume growth. We remain
confident on the growth prospects, especially in North America. The volumes in our New York
based matching engine (NY4) have grown by an impressive 267% during the course of 2018.
Clients are responding positively to our offering and clearly value our independent status anddistinctive business model focused on providing consistent, best-in-class service.

With its global reach and multi-asset capabilities, LMAX Global continues to expand and now holds$250m of client funds across 5,000 live accounts, including broker-dealers, funds, and professional
traders. We are particularly pleased about the outstanding contribution from our Asia Pacificbusiness, where we grew revenues by 47%. With clients in 100 different countries and 11 offices
worldwide, we remain in expansion mode and have built out our multi-hub offering to maximise
growth potential.

Our most recent business was launched in Q2 of 2018 on the back of strong demand by our
institutional FX clients and our fifth exchange has demonstrated the same exemplary standards of
exchange trading that LMAX has become renowned for. With 175 institutional accounts opened
already, it is the fastest growing exchange within the Group, breaking even within five months oflaunch and is well placed for further growth with the anticipated entry of institutional investors
and global clearing banks into the crypto currency industry. Being one of only eight firms tobe awarded a Distributed Ledger Technology (DLT) license by the Gibraltar Financial Services
Commission, we aim to play a crucial role in bringing crypto currencies into wider circulation,
helping them to become part of mainstream capital markets and believe that blockchain
technology will fundamentally revolutionise capital markets particularly in the realm of settlement,
payments and reconciliation.

12

CEO’s statement

Annual Report December 2018 | LMAX Exchange Group Limited

CEO’s statement
Group performance - compound annual growth
Shown in presentation currency
VOLUMES VOLUMES
$tn*

3.1

$tn*

2.5
1.8

2.1

20%
20%

1.8

3.1

’16

38

£m

28

2.1

23

18%
18%

31

28

38
31

23

Annual growth
Annual growth

Annual growth
Annual growth’15

REVENUESREVENUES
£m

2.5

’17
’15 ’18
’16

’17

’15

’18

’16

’17
’15 ’18
’16

’17

’18

*market convention to report in USD

GROSS PROFITGROSS PROFIT
£m

33

£m

26
21

28%
28%
16

33

’16

EBITDA*

£m

£m

15.2

26
21

177%
177%

16

Annual growth
Annual growth
0.7’17’15 ’18
’16

9.0

6.0

Annual growth
Annual growth’15

EBITDA*

’17

’18

’15

’16

15.2
9.0

6.0
0.7
’17
’15 ’18
’16

’17

’18

Future outlook
As we progress into 2019, we will be placing increased focus on growing business within our global
institutional client segment. Following a number of senior high calibre hires in our distribution
teams, notably in EMEA and Asia Pacific, we are well positioned to service these clients bydemonstrating the quality of our robust, low-latency, transparent execution and lower overall costof trading.
We will build on this momentum by investing in our business to expand and deepen our client
relationships across the globe, whilst continuing to deliver an optimal experience for the 300-plus
funds, banks, asset managers and brokers that we serve amongst our global client base.
We will continue to monitor industry developments and are mindful of the macroeconomic,
technological and regulatory evolution. We are committed to continuing to invest in technology
and strive to deliver operational excellence, while investing for growth across our core businesses.
We will also further invest in our market-leading proprietary technology, which is the key enablerof the company’s business model, building on the US$100m of investments to date to ensure
the primacy of our execution venues as we expand the strength and breadth of our distribution
capabilities in key growth markets.
On behalf of the Board:
David Mercer, Director and CEO
8 January 2020

EBITDA of £15.2m (US$20.2m) is arrived at by adding back depreciation of £0.9m (US$1.3m), amortisation of £2.7m (US$3.6m), foreignexchange losses of £1.2m (US$1.6m), legal costs relating to the Group reorganisation of £0.4m (US$0.5m) and general provisions of £0.3m(US$0.5m) for the year to operating profit of £9.6m (US$12.7m).

CEO’s statement

13

LMAX Exchange Group Limited | Annual Report December 2018

Principle risks
Risk Profile
Risk management is central to the long-term success of the Group and to the resilience of ouroperations. In the second half of 2017 and early 2018 the Group successfully modified its systems,
processes and controls to adapt to changes in the regulatory environment including MiFID II. The
Group continues to support its key markets and deliver stable and resilient services that meet ourclients’ needs.
LMAX has well-established processes for identifying and managing risks. The Board sets the Risk
Appetite and monitors how well risks within each business are mitigated and controlled. The
emphasis of risk management within the Group is to support a sustainable business model with thecapacity to manage all the risks it faces, and able to continue to offer its services under sustained
financial market volatility and stressed conditions.
The level of revenue in any period is driven by the volume of trading undertaken by its clients
which in turn is predominantly driven by market volatility. Revenue is largely earned throughcommission charged on client trades and financing on client positions held overnight.
The Group faces liquidity and capital adequacy risk through its business model. It encounters
operational risks, including those arising through technology, people, process and external events.
It also faces conduct risk relating to how it deals with its clients and with the markets. LMAX
operates in a dynamic competitive environment, and faces risks relating to market conditions andits competitive position.
LMAX operates in a number of geographic regions which affects how it is able to market andprovide its services to clients. The regulations relating to the products and markets in which thebusiness operates are continually evolving. The Group welcomes any movement by regulators to
improve client outcomes, and also recognises some changes adversely impact its or the activities of
its clients as the industry adapts.
Reputation with clients
Our revolutionary, minimalist technology delivers one global marketplace for FX – throughexchange infrastructure in London, New York and Tokyo, ensuring complete transparency, open
access and a level playing field for all market participants. All clients of LMAX Exchange aremembers of the exchange and have signed up to a public rulebook with all members treatedequally. LMAX Exchange can count most of the worlds’ largest banks as its clients, the majority ofwhom have been members of the Exchange since 2012.
We ensure that commitment to our customers is embedded in our culture and strategic initiatives
and there is regular dialogue between LMAX Exchange and all of its clients. The Company hasenhanced its relationship support team across the year in both London and New York. This enables
us to develop our products and services specifically to meet the needs of our global client base.
Central to our commitment to our customers is the transparency and quality of our order
execution. LMAX Exchange is an advocate of no last look trading and processes 100% of client
trades automatically, never requoting prices. Should a significantly better price become available
for customers during the dealing process, our innovative price-improvement technology enables
customers to receive that better price during trade execution.
14

Principle risks

Annual Report December 2018 | LMAX Exchange Group Limited

Principle risks
LMAX Global has three main categories of clients: institutional, professional and a small numberof direct retail. We offer clients the opportunity to be classified as professional traders in the EU
and UK, under MiFID categorisations. However, we require them to demonstrate compliance witha set of rigorous eligibility criteria to ensure that they are suitably qualified for this designation.
LMAX Global in the main provides services to institutions, including asset managers, hedge funds,
STP brokers and broker-dealers providing direct access to major hedging counterparties.
We ensure that commitment to our customers is embedded in our culture and strategic initiatives,
and we regularly seek and review feedback from our clients. This enables us to develop our
products and services specifically to meet the needs of a global client base. Central to thecommitment to our customers is the transparency and quality of our order execution. LMAX
Global is an advocate of no-last look trading and processes 100% of client trades automatically,
never requoting prices. Should a significantly better price become available for customers during
the dealing process, our innovative price-improvement technology enables customers to receivethat better price during trade execution.
In addition to dealing directly with clients, LMAX Global services clients introduced through third
parties who do not have their own front-end offering and want to take advantage of our awardwinning technology and expertise. They introduce their clients to us, and we provide execution
services and back-end support. The introducer manages the client relationship. We carefully
assess the risk and potential returns from introducers, and only partner with reputable institutions
that are committed to the same rigorous standards of regulatory compliance as ourselves, andwhom fit our risk profile.
Impact of the economic environment
The economic environment remains a risk to the growth plans for the business, and whilst
management continue to monitor its effects upon our customer base, the management believethat due to a mature and diversified customer base and product mix, the Company is well
positioned to manage any adverse impact.
The Group performs regular analysis to monitor the markets and the potential impacts of market
price movements on the business. Activities include Key Risk Indicator tracking, stress testing,and hedging.
Particular consideration has been given to the potential impact to the Group of the UK no longer
having access to the single market with the loss of the rights to passport services in other EU
member states. The Group will monitor progress of the political negotiations between the UK and
the EU and will be ready to act if required to ensure we can continue to operate across the EU.
Regulatory developments
The Company, and the industry as a whole, has faced significant change in the UK and EU when
ESMA announced measures, pursuant to its new product intervention powers under Article
40 of MiFIR, to address investor protection risks. These measures apply only to retail clients.
In accordance with MiFIR, ESMA can introduce temporary intervention measures on a threemonthly basis, and before the end of the three months ESMA will consider the need to extend theintervention measures for a further three months. The FCA expects to consult on whether to apply
Principle risks

15

LMAX Exchange Group Limited | Annual Report December 2018

Principle risks
these measures on a permanent basis. The Company is working on the basis that the temporary
restrictions will become permanent in the UK and across the EU.
Credit risk
LMAX Global is exposed to credit risk as a result of placing collateral with prime brokers andtherefore losses may occur due to the default of the prime broker. The selection of good credit
quality CCP and non-CCP counterparties are fundamental, as too is the ongoing periodic
assessments.
Concentration risk is monitored daily to ensure that pre-defined thresholds limits are notexceeded, with corrective action taken immediately to prevent this.
Credit risk also relates to its customers and counterparties being unable to meet their obligations
to LMAX Global either in part or in full. This is minimised through prudent levels of margin being
required to cover exposures, which is dynamically monitored through the trading platform.
LMAX Group makes a judgement on the credit quality of their customers based upon thecustomer’s financial position, the recurring nature of billing and collection arrangements and,
historically, a low incidence of default.
IT security
As an online business, the integrity, security, stability and operational robustness of IT systems
are critical for ongoing performance. Technology failures may impact our clients and the orderly
running of markets on our Exchange, potentially leading to a loss of trading volumes. Ensuring thatappropriate protections are in place to detect and prevent any intrusion such that all systems are
safeguarded against hackers, email viruses, attacks and other forms of cybercrime is essential. Any
failure in these measures could significantly impact the Company’s reputation and hence financial
performance. As part of the systems infrastructure, management regularly review system security
and regularly conducted external cyber audits.
We follow security standards (ISO27001) to ensure these risks are managed and treatedappropriately. We spend a significant amount of resource and investment deploying processes,
procedures and technologies to mitigate the impact of cyber and other IT related risks.
Future outlook
LMAX Global has delivered a sustainable brokerage business for a number of years by offeringclients the ability to trade on the LMAX Exchange central limit order book, offering tighter spreads
on streaming firm liquidity from top tier banks and proprietary trading firms. The business is well
positioned to mitigate the impact of regulatory change and to continue to deliver sustainablegrowth.
LMAX Global welcomes greater clarity around the nature and extent of such change affecting the
FX and CFD industry, such as the recent measures imposed by ESMA relating to the provisionof CFDs to retail clients in the UK and EU. These developments are commensurate with theCompany’s vision of transforming global FX trading and driving change in the industry in orderto encourage a fairer and more transparent market place. The Company will continue to invest intechnology and strategies that help to deliver future growth.
16

Principle risks

Annual Report December 2018 | LMAX Exchange Group Limited

Principle risks
Proposed dividend
The directors do not recommend the payment of a dividend for 2018 (2017: nil).
Directors
The directors who held office during the year and at the date of this report was as follows:
David Mercer (appointed 21 December 2017); Edmond Warner (appointed 16 July 2019);
Edward Wray (appointed 16 July 2019); Grant Pomeroy (appointed 16 July 2019).
Employees
The Company is committed to promoting and encouraging equal opportunities for all prospective
and current employees and actively promotes good employee relations. Management aims toeliminate any conditions, procedures and individual behaviour that can lead to discriminationeven where there was no intent to discriminate, with particular regard to race, gender, disability,
sexuality, age, religion and belief.
Management recognise that employees are key to both its present and future success and placesconsiderable value on the involvement of its employees. In order to maximise the potential of
every employee, management support the fundamental belief that there must be considerable
investment in training and development, a supportive and progressive working environment andemployee contribution and involvement in business matters.
Management continued its practice of keeping employees informed on matters affecting themand on the various factors affecting the performance of the Company. This was achieved throughformal and informal meetings. Employees are consulted regularly on a wide range of mattersaffecting their current and future interests.
AuditorPricewaterhouseCoopers LLP were appointed as the auditors of the Group on 14th May 2018,(pursuant to the shareholder special resolution) the auditors will be deemed to be reappointed andtherefore will continue in office.
Disclosure of information to auditor
The directors holding office at the date of approval of the financial statements confirms that, so
far as they are aware, there is no relevant audit information of which the Company’s auditor isunaware; and have taken all the steps that ought to have taken as a directors to make themselvesaware of any relevant audit information and to establish that the Company’s auditors are aware ofthat information.
On behalf of the Board:
David Mercer, Director and CEO
8 January 2020

Principle risks

17

LMAX Exchange Group Limited | Annual Report December 2018

Statement of directors’ responsibilities in respect of thefinancial statements
The directors are responsible for preparing the Annual Report and the financial statements inaccordance with applicable law and regulation.
Company law requires the directors to prepare financial statements for each financial year. Under
that law the directors have prepared the group and company financial statements in accordancewith International Financial Reporting Standards (IFRSs) as adopted by the European Union.
Under company law the directors must not approve the financial statements unless they aresatisfied that they give a true and fair view of the state of affairs of the group and company and of
the profit or loss of the group and company for that period. In preparing the financial statements,
the directors are required to:› select suitable accounting policies and then apply them consistently;› state whether applicable IFRSs as adopted by the European Union have been followed, subject
to› any material departures disclosed and explained in the financial statements;› make judgements and accounting estimates that are reasonable and prudent; and› prepare the financial statements on the going concern basis unless it is inappropriate topresume that the group and company will continue in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show
and explain the group and company’s transactions and disclose with reasonable accuracy at any
time the financial position of the group and company and enable them to ensure that the financial
statements comply with the Companies (Jersey) Law 1991 and, as regards the group financial
statements, Article 4 of the IAS Regulation.
The directors are also responsible for safeguarding the assets of the group and company
and hence for taking reasonable steps for the prevention and detection of fraud and otherirregularities.
In the case of each director in office at the date the Directors’ Report is approved:› so far as the director is aware, there is no relevant audit information of which the group andcompany’s auditors are unaware; and› they have taken all the steps that they ought to have taken as a director in order to makethemselves aware of any relevant audit information and to establish that the group andcompany’s auditors are aware of that information.

18

Statement of Directors’ responsibilities in respect of the financial statements

Annual Report December 2018 | LMAX Exchange Group Limited

Independent auditors’ report to the members of
LMAX Exchange Group Limited
Report on the audit of the financial statements
Qualified opinion
In our opinion, except for the possible effects of the matter described in the Basis for qualified
opinion paragraph below, LMAX Exchange Group Limited’s group financial statements andcompany financial statements (the “financial statements”):› give a true and fair view of the state of the group’s and of the company’s affairs as at 31
December 2018 and of the group’s and the company’s profit and cash flows for the year thenended;› have been properly prepared in accordance with International Financial Reporting Standards(IFRSs) as adopted by the European Union; and› have been prepared in accordance with the requirements of the Companies (Jersey) Law 1991.
We have audited the financial statements, included within the Annual Report, which comprise:
the group and parent company statements of financial position as at 31 December 2018; thegroup and parent company statements of comprehensive income, the group and parent company
statements of cash flows, and the group and parent company statements of changes in equity forthe year then ended; and the notes to the financial statements, which include a description of thesignificant accounting policies.
Basis for qualified opinion
The Group holds crypto currency balances on the consolidated statement of financial position
amounting to £10.3m as at 31 December 2018 on behalf of customers and for its own use.
The crypto currency market is in its early stages and accordingly there is a lack of reliableinfrastructure in place across the market to read transactions and balances available in the blockchain public domain. Currently management uses open source tools to read the block chain
network. Although the approach is largely consistent across the market, we were unable to obtainsufficient appropriate audit evidence supporting the existence of these assets as at 31 December
2018 as we were unable to assess the reliability of these open source tools. Consequently, we areunable to determine whether any adjustments to these amounts were necessary.
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”)and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors’
responsibilities for the audit of the financial statements section of our report. We believe that theaudit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified
opinion.
Independence
We remained independent of the group in accordance with the ethical requirements that are
relevant to our audit of the financial statements in the UK, which includes the FRC’s EthicalStandard, and we have fulfilled our other ethical responsibilities in accordance with theserequirements.

Independent auditors’ report to the members of LMAX Exchange Group Limited

19

LMAX Exchange Group Limited | Annual Report December 2018

Independent auditors’ report to the members of
LMAX Exchange Group Limited
Conclusions relating to going concern
ISAs (UK) require us to report to you when:› the directors’ use of the going concern basis of accounting in the preparation of the financial
statements is not appropriate; or› the directors have not disclosed in the financial statements any identified material uncertainties
that may cast significant doubt about the Group’s ability to continue to adopt the going concern
basis of accounting for a period of at least twelve months from the date when the financial
statements are authorised for issue.
We have nothing to report in respect of the above matters.
However, because not all future events or conditions can be predicted, this statement is not aguarantee as to the group’s and company’s ability to continue as a going concern. For example, theterms on which the United Kingdom may withdraw from the European Union are not clear, and it isdifficult to evaluate all of the potential implications on the group’s trade, customers, suppliers andthe wider economy.
Reporting on other information
The other information comprises all of the information in the Annual Report other than thefinancial statements and our auditors’ report thereon. The directors are responsible for the otherinformation. Our opinion on the financial statements does not cover the other information and,accordingly, we do not express an audit opinion or any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the otherinformation and, in doing so, consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the audit, or otherwise appears to bematerially misstated. If we identify an apparent material inconsistency or material misstatement,
we are required to perform procedures to conclude whether there is a material misstatement of
the financial statements or a material misstatement of the other information. If, based on the work
we have performed, we conclude that there is a material misstatement of this other information,
we are required to report that fact. We have nothing to report based on these responsibilities.
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of the directors’ responsibilities set out on page 18,
the directors are responsible for the preparation of the financial statements in accordance with theapplicable framework and for being satisfied that they give a true and fair view. The directors arealso responsible for such internal control as they determine is necessary to enable the preparationof financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s andthe company’s ability to continue as a going concern, disclosing, as applicable, matters related togoing concern and using the going concern basis of accounting unless the directors either intend to20

Independent auditors’ report to the members of LMAX Exchange Group Limited

Annual Report December 2018 | LMAX Exchange Group Limited

Independent auditors’ report to the members of
LMAX Exchange Group Limited
liquidate the group or the company or to cease operations, or have no realistic alternative but todo so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as
a whole are free from material misstatement, whether due to fraud or error, and to issue anauditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is
not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are consideredmaterial if, individually or in the aggregate, they could reasonably be expected to influence theeconomic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on
the FRC’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of ourauditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the company’s members
as a body in accordance with Article 113A of the Companies (Jersey) Law 1991 and for no otherpurpose. We do not, in giving these opinions, accept or assume responsibility for any otherpurpose or to any other person to whom this report is shown or into whose hands it may comesave where expressly agreed by our prior consent in writing.

Independent auditors’ report to the members of LMAX Exchange Group Limited

21

LMAX Exchange Group Limited | Annual Report December 2018

Other required reporting
Companies (Jersey) Law 1991 exception reporting
In respect solely of the limitation on our work relating to matters, described in the Basis for
qualified opinion paragraph above:› we have not obtained all the information and explanations that we considered necessary for the
purpose of our audit; and› we were unable to determine whether proper accounting records have been kept by thecompany.
Under the Companies (Jersey) Law 1991 we are also required to report to you if, in our opinion:› proper returns adequate for our audit have not been received from branches not visited by us;or› the financial statements are not in agreement with the accounting records and returns.
We have no exceptions to report arising from this responsibility.

Lawrence Wilkinson(Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors,
London,8 January 2020

22

Other required reporting and other matterAnnual Report December 2018 | LMAX Exchange Group Limited

Consolidated statement of comprehensive income

For the year ended 31 December 2018

Note

2018

2017
*(Restated)

£’000

£’000

Revenue

2.1

37,53930,839

Cost of sales

2.2(4,310)(3,971)33,22926,868(23,655)(21,256)

Operating profit

9,574

5,612

Financial income

236

436

Gross profit
Administrative expenses

2.3

Financial expenses(1,134)(14)

Profit before tax

8,676

6,034

(1,442)

(903)

7,234

5,131

35

(239)

7,269

4,892

6,734

3,107

535

1,785

Taxation

3

Profit for the year
Other comprehensive income/(expense)
Profit and total comprehensive income for the year

Total comprehensive expense/income attributable to:Equity holders of the parent
Non-controlling interest

The results shown above are derived wholly from continuing operations.
The accompanying notes on pages 27 to 51 form an integral part of these financial statements.
*Prior year restatement is detailed in note 2.8 on page 35 of these financial statements.

Consolidated statement of comprehensive income23LMAX Exchange Group Limited | Annual Report December 2018

Consolidated statement of financial position
As at 31 December 2018

Note

2018

2017
*(Restated)

£’000

£’000

Non-current assets
Intangible assets

5

4,496

3,732

Property, plant and equipment

6

2,342

1,372

Cash and cash equivalents

950,65929,760Trade and other receivables

7

43,495

27,154

Other assets

8

10,352-

Deferred tax asset

3.1

-

27

111,344

62,045

10(15,390)-

Trade and other payables

10(92,890)(44,486)

Deferred tax liabilities

3.1

(220)

-

(108,500)(44,486)

2,844

17,559

1,000

971

Current assets

Total assets
Non-current liabilities
Trade and other payables
Current liabilities

Total liabilities
Net assets
EquityShare capital

-

1,177

(8,575)-

Other equity

132-

Foreign currency translation reserve

111

80

Retained earnings

6,703

7,530

Equity attributable to equity holders of the parent

(629)

9,758

Non-controlling interest

3,473

7,801

Total equity

2,844

17,559

Share premium
Demerger reserve

The accompanying notes on pages 27 to 51 form an integral part of these financial statements.
These consolidated financial statements were approved by the Board on 8 January 2020 andwere signed on behalf of the Board by:David Mercer, Director and CEO
8 January 2020
*Prior year restatement is detailed in note 2.8 on page 35 of these financial statements.

24

Consolidated statement of comprehensive income

Annual Report December 2018 | LMAX Exchange Group Limited

Consolidated statement of changes in equity
For the year ended 31 December 2018
Share
Share
capital premium

Foreigncurrencytranslation
reserve

Demerger
ReserveOther
equityRetainedearnings

Total
Non
parent controlling
equityinterest

Total
equity

£’000

£’000

£’000

£’000

£’000

£’000

£’000

£’000

£’000

971

1,177

232

-

-

4,271

6,651

6,016 12,667

Profit for the year
Restated

-

-

-

-

-

3,259

3,259

1,872

5,131

Other comprehensive
income

-

-

(152)

-

-

-

(152)

(87)

(239)

Total comprehensive
income for the year

-

-

(152)

-

-

3,259

3,107

1,785

4,892

Balance at 31
December 2017
(Restated)**

971

1,177

80

-

-

7,530

9,758

7,801 17,559

Balance at 1 January
2018

971

1,177

80

-

-

7,530

9,758

7,801 17,559

LMAX ExchangeGroup - new hold co.
incorporation

1,000

-

-

(1000)

-

-

-

-

-

Group
reorganisation*(1000) (1,491)

-

2,491

-

-

-

-

-

Transfer of reserves*

-

-

-

7,530

- (7,530)---

Acquisition of MI*

-

-

-

(17,596)-

Profit for the year

-

-

-

-

-

6,703

6,703

531

7,234

Other comprehensive
income

-

-

31

-

-

-

31

4

35

Total comprehensive
income for the year

-

-

31

-

-

6,703

6,734

535

7,269

Issue of share option

-

-

-

-

392

-

392

-

392

Equity-settled sharebased paymenttransactions

29

314

-

-

(260)

-

83

-

83

Total distributions
to owners

29

314

-

-

132

-

475

-

475

Balance at 31
December 2018

1,000

-

111

(8,575)

132

6,703

(629)

3,473

2,844

Balance at 1 January
2017 (Restated)**(17,596) (4,863) (22,459)

Dividend paid in the year was £nil.
The accompanying notes on pages 27 to 51 form an integral part of these financial statements.
*For movement in retained earnings please refer to note 4 for more details.
**Prior year restatement is detailed in note 2.8 on page 35 of these financial statements.

Consolidated statement of financial position

25

LMAX Exchange Group Limited | Annual Report December 2018

Consolidated statement of cash flows
For the year ended 31 December 201820182017 *(Restated)

£’000

£’000

Operating profit

9,574

5,612

Adjustments for:--

Depreciation

941

1,152

Amortisation

2,728

2,732

Gain on sale of employee shares

(236)

-

(Increase) in trade and other receivables(16,341)(10,156)(Increase) in inventories(10,352)-

Increase in trade and other payables

45,535

922

(686)

(363)

31,163(101)

Acquisition of property, plant and equipment(1,911)(1,101)

Acquisition of intangibles and capitalised expenses(3,492)(2,301)236

436(5,167)(2,966)

Net movement in borrowings

17,750-Finance expense(1,134)

(14)

515

-

Acquisition of minority interest(22,376)-

Net cash used in financing activities(5,245)(14)

Net increase in cash and cash equivalents

20,751(3,081)

Cash and cash equivalents at beginning of year

29,76033,080Effect of exchange rate fluctuations on cash held

148

(239)

50,65929,760Cash flows from operating activities

Tax paid
Net cash from operating activities
Cash flows from investing activities

Financial income
Net cash used in investing activities
Cash flows from financing activities

Increase in other reserves

Cash and cash equivalents at end of year

The accompanying notes on pages 27 to 51 form an integral part of these financial statements.
*Prior year restatement is detailed in note 2.8 on page 35 of these financial statements.

26

Consolidated statement of changes in equity

Annual Report December 2018 | LMAX Exchange Group Limited

Notes to consolidated financial statements
1. Accounting policies
The financial statements have been prepared and approved by the Directors in accordancewith International Financial Reporting Standards (IFRS) and International Financial Reporting
Committee (IFRIC) Interpretations as adopted by the European Union (EU) (together “adopted
IFRS”).
The following accounting policies have been applied consistently in dealing with items which areconsidered material in relation to the financial statements.
Going concern
The Directors have considered all available information about the future events when considering
the Group’s going concern. The Directors have reviewed profit and cash flow forecasts for at least
12 months following the date of the signing of these financial statements. These forecasts take
into account future expected revenues, costs, liquidity and statutory capital requirements of thesubsidiaries.
The Directors believe the Group has sufficient financial resources together with an increasing
and more diversified number of customers and suppliers across different geographic areas. As
a consequence, the Directors believe that the Group is well placed to manage its business risks
successfully and has a reasonable expectation that the company has adequate resources tocontinue in operational existence for the foreseeable future. Thus the Group continues to adopt
the going concern basis of accounting in preparing the financial statements.
Basis of preparation
The Group financial statements have been prepared under the historical cost accounting except
where required otherwise by the adopted IFRS.
The preparation of financial statements requires judgements, estimates and assumptions to bemade that affect the application of policies, assets and liabilities, and revenues and expenses.
Estimates and judgements are continually evaluated. They are based on historical experience andother factors, including expectations of future events that may have a financial impact on the entity
and that are believed to be reasonable under the circumstances. Actual results may differ fromthose estimates. Any revision to accounting estimates are recognised in the period in which theestimate is revised if the revision affects only that period or in the period of the revision and future
periods if the revision affects both current and future periods.
Judgement made by management in the application of the accounting standards that havesignificant effect on the financial statements and major sources of estimation uncertainty aredisclosed where applicable. The areas involving significant estimates or judgement include thecarrying value & useful economic life estimates of non-current assets, the recoverability of current
assets and liabilities and namely:

Notes to consolidated financial statements

27

LMAX Exchange Group Limited | Annual Report December 2018

Notes to consolidated financial statements› Impairment for expected credit losses - note 7.1› Estimation of current tax payable and current tax expense – note 3› Estimated useful economic life of intangible asset - note 5› Valuation of crypto currencies- note 13.6
Basis of consolidation
The consolidated financial statements include the financial statements of the Company and its
subsidiary undertakings made up to 31 December 2018. The accounting policies of the Company
and its subsidiaries are consistent with each other aside from the basis of preparation.
All intra-group transactions, balances, income and expenses are eliminated on consolidation.
Subsidiaries with reporting currencies different to British Pound are converted using the following
rates:› Assets and liabilities are translated using the rate exchange at the balance sheet date
› Items of income and expense are translated at an average rate for the accounting period
Gains or losses recognised from translation are included in the Statement of Other
Comprehensive Income and is included in the foreign currency translation reserve.
Changes in accounting policies
From 1 January 2018 the Group adopted IFRS 9 ‘Financial Instruments’ as issued by the IASB in
July 2014. The Group did not early adopt IFRS 9 in previous periods.
As permitted by the transitional provisions of IFRS 9, the Group elected not to restate comparative
figures. The consequential amendments to IFRS 7 disclosures have only been applied in thecurrent year.
The adoption of IFRS 9 has resulted in no significant changes in the Group’s accounting policies forrecognition, classification, measurement and impairment of financial assets and liabilities hence theimpact has been immaterial.
Intangible assets, amortisation, research and development
Acquired software licences are capitalised on the basis of the costs incurred to acquire and bringit into use. The costs are amortised over their estimated useful economic life or the life of thesoftware licence contract which is three to five years.
The Group undertakes continuous development of its MTF exchange, broker and mobile
application software. The development activity involves planning and designing for the productionof new and substantially improved features for the MTF exchange and broker. To the extent it istechnically and commercially feasible and there is an intention to complete, each development,labour and expenses directly attributable to new and improved features are capitalised as anintangible asset.
Other development expenditure and research activities are expensed as incurred. The capitalised
cost of developed software is amortised over a three year period. There were no impairment losses
recognised on developed software.
28

Notes to consolidated financial statements

Annual Report December 2018 | LMAX Exchange Group Limited

Notes to consolidated financial statements
Property, plant and equipment and depreciation
Assets are stated at historical cost less accumulated depreciation. Depreciation is provided
to write off the cost less the estimated residual value of assets by equal instalments over theirestimated useful economic lives as follows:
Leasehold

Shorter of the term of the lease or the useful economic life of the asset

Computer equipment and software 33% straight line
Fixtures and fittings

20% straight line

Impairment of intangible and tangible assets
The carrying amounts of the Group’s assets are reviewed for impairment when events or changes
in circumstances indicate that the carrying amount of the asset may not be recoverable. If any such
indication exists, the asset’s recoverable amount is estimated. In the event that the recoverable
amount is below the carrying amount, an impairment loss is recognised.
Assets may be part of an income generating unit, which is the smallest identifiable group of assetsthat generates income that is largely independent of the income streams from other assets orgroups of assets. In respect of income-generating units, impairment losses are allocated first to
reduce the carrying amount of any goodwill allocated to income-generating units, then to any
capitalised intangible asset and finally to the carrying amount of the tangible assets in the unit on a
pro rata or more appropriate basis.
The recoverable amount of an asset is the greater of their net realisable value and value in use. In
assessing value in use, the expected future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of the rate of return expected on an
equally risky investment.
Trade and other receivables
Trade and other receivables are measured initially at fair value. In accordance with IFRS 9
paragraph B5.5.35, subsequent to initial recognition, the amortised cost is measured by calculating
the expected credit losses (ECL) on trade receivables through the use of a provision matrix where afixed provision rate applies depending on the number of days that a trade receivable is outstanding.
Inventories - crypto currencies
Inventory represents crypto currencies controlled by the Group.
The Group operates a crypto currency exchange which provides a trading venue for its clients totrade hence the Group controls the crypto assets held on its clients’ trading account.
In the absence of guidance on how crypto currency assets should be recognised and disclosed
in accordance with IFRS as adopted by the EU, the Group has recognised the crypto currencies
as inventories as the economic nature is deemed to be in line with certain commodities under
IAS 2.3(b). Crypto currencies are in the financial statements as inventories. These are initiallymeasured at cost and subsequently measured at fair value with the movement in the fair value
recognised in the income statement.

Notes to consolidated financial statements

29

LMAX Exchange Group Limited | Annual Report December 2018

Notes to consolidated financial statements
Trade and other payables
Trade payable represents balances with counterparties and clients where the combination of
cash held on account and the valuation of their trading position results in an amount payable by
the Group. Trade and other payables are recognised initially at fair value. Subsequent to initialrecognition they are measured at amortised cost using the effective interest method.
The client liability in relation to open contract for difference (“CFD”) products is valued at fairvalue and thus the gain and loss on these CFD positions is recorded in the income statement as
per the guidance under IFRS 9.
Cash and cash equivalents
Cash comprises cash in hand and deposits repayable on demand. The Group holds money onbehalf of clients in accordance with the client money rules of the UK Financial Conduct Authority
and other regulatory bodies. Such monies are classified as either ‘transfer of title funds’ or‘segregated client funds’ in accordance with the relevant regulatory requirements.
Segregated client funds comprise individual client funds held in segregated client money accounts
which hold statutory trust status, restricting the Group’s ability to control the monies. Thesemonies are not recognised on the balance sheet. The return received on managing segregatedclient funds is included in Finance income.
Title transfer funds are held by the Group under a Title Transfer Collateral Arrangement, by whicha client agrees that full ownership of such monies is unconditionally transferred to the Group.
Title transfers funds are included in cash and cash equivalents and Collateral receivables. The
corresponding liability for title of transfer funds is included in trade and other payables.
Capital reorganisation
Guidance under IFRS 3 suggest that the consolidated financial statements of LMAX ExchangeGroup Limited (“new company”) should reflect the pre-combination carrying values of thesubsidiaries acquired from Hamsard 3297 Limited, with comparatives being presented for all priorperiods. This is due to fact that there is no substantive economic change in the group structure
before and after the capital reorganisation. The shareholders of the new Company before andafter the transaction remain the same and continue to have the same proportion of shareholdings.
For details of the capital reorganisation, see note 4.
Acquisition of shares from minority interest
The new Company acquired the remaining shares in LMAX Broker and LMAX Limited from The
Sporting Exchange Limited (part of the Betfair Group) as detailed in note 4. As per guidance under
IAS 27 this has been accounted for as a transaction with the shareholders of the Group whereby
any excess of consideration paid over the net assets acquired is adjusted to the equity of thecontrolling shareholders.
Revenue
Revenue is measured as the consideration received from customers for trading commissions,funding revenue and service fee revenue. Commissions are recognised on the date the trade is30

Notes to consolidated financial statements

Annual Report December 2018 | LMAX Exchange Group Limited

Notes to consolidated financial statements
executed, funding revenue is recognised on the close of trading day and is based on the customer’s
open positions and service fee revenues are recognised once charged to the customers’ accounts.
The proprietary trading revenue is recognised on the close of trading day, represents realised andunrealised Profit and loss made on proprietary trading positions.
Interest income comprises of interest receivable on funds held in bank accounts. Finance income isrecognised as it accrues, using the effective interest method.
Cost of sales
Commission and any transaction clearing fees paid relating to the customer trades is recorded
within the Cost of sales. Cost relating to introducing broker fees is recorded in the same period as
the underlying trading commission and funding revenue.
Employee and other short-term benefits
The Group operates a defined contribution pension plan under which the fixed contributions arepaid to a third party pension provider and there is no legal or constructive obligation to pay further
amounts. Contributions are recognised as an expense in the periods during which services are
rendered by employees.
Short-term employee benefit obligations (i.e. leave pay) are measured on an undiscounted basis
and are expensed as the related service is provided.
Research and development grant
The Group is eligible for a grant on research and development activities it undertakes. The grant isrecognised when there is reasonable assurance that the Group will meet the requirements of the
grant and that it will be received. The portion of the grant that is subject to deduction from futuretaxable payments is recognised only to the extent that there is reasonable assurance there will be
future tax payments.
Foreign currencies
The financial statements are presented in British Pounds which is the Group’s functional currency.
Transactions in foreign currencies are recorded using the rate of exchange ruling at transaction
date. Monetary assets and liabilities denominated in foreign currencies are translated using therate of exchange ruling at the balance sheet date. Foreign currency gains and losses are reported
on a net basis are included in the Consolidated Statement of Comprehensive Income.
Finance and operating leases
Total payments made under operating leases are recognised as an expense on a straight-line basis
over the term of the lease.
Minimum lease payments for finance leases are apportioned between the finance charge and the
reduction of the outstanding liability. The finance charge is allocated to each period during thelease term so as to produce a constant periodic rate of interest on the remaining balance of theliability. The liability is shown within trade and other payables.

Notes to consolidated financial statements

31

LMAX Exchange Group Limited | Annual Report December 2018

Notes to consolidated financial statements
Financial income per Statement of Comprehensive Income
Financing expenses comprise interest charges from financial institutions, suppliers and financeleases. Finance charges are recognised using the effective interest method. There were no
borrowing costs that are directly attributable to the acquisition, construction or production of anasset.
Financing income comprise interest receivable on funds held in bank accounts. Finance income isrecognised as it accrues, using the effective interest method.
TaxationTax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in
the income statement except to the extent that it relates to items recognised directly in othercomprehensive income, in which case it is recognised in the Statement of Other Comprehensive
Income.
Current tax is the expected tax payable or receivable on the taxable profits or losses for the year,
using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment totax payable in respect of previous years.
Deferred tax is provided on temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used for taxation purposes. The
following temporary differences are not provided for: the initial recognition of goodwill; the initialrecognition of assets or liabilities that affect neither accounting nor taxable profit other than in abusiness combination, and differences relating to investments in subsidiaries to the extent thatthey will probably not reverse in the foreseeable future. The amount of deferred tax provided isbased on the expected manner of realisation or settlement of the carrying amount of assets andliabilities, using tax rates enacted or substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits
will be available against which the temporary difference can be utilised.
Related party transactions
The Group has procedures to identify and monitor related party transactions. The Group, where
possible, endeavours to transact with all related parties on an arm’s length basis. The disclosures ofidentified related party transactions are included in note 11.

32

Notes to consolidated financial statements

Annual Report December 2018 | LMAX Exchange Group Limited

Notes to consolidated financial statements
2. Profit before tax
2.1 Revenue breakdown
20182017 *(Restated)

£’000

£’000

Commissions

18,356

15,575

Funding revenue

16,567

13,162Others

2,616

2,102

Total Revenue

37,53930,83920182017 *(Restated)

£’000

£’000

Clearing and trading fees

1,541

1,273

Introducing broker fees

1,933

2,063

Expected credit loss

372

48

Other variable costs

464

587

Total cost of sales

4,310

3,971

2.2 Cost of sales is stated after charging:

2.3 Administrative expenses are stated after charging/(crediting):
Note

2018

2017 *(Restated)

£’000

£’000

12,99010,551

1,283

1,149

190

148

(3,117)(2,265)

Depreciation of tangible assets

941

1,153

Amortisation of intangible assets

2,728

2,732

824

704

Legal and Professional

877

824

Foreign exchange losses

1197

81

Research & development tax grant(1,590)(688)

Other costs

7,332

6,867

Total administrative expenses

23,655

21,256

Total salary expenses

2.4

Social security expenses
Other Pension costs- of which capitalised as development software

Other operating lease rentals – buildings

Notes to consolidated financial statements

2.5

33

LMAX Exchange Group Limited | Annual Report December 2018

Notes to consolidated financial statements
2. Profit before tax (cont.)
2.4 The average monthly number of persons employed by the Group (including directors)
analysed by category is as follows:
2018

2017

No.

No.

Corporate and administration

28

23

Product development

43

35

Operations

23

21

Sales and marketing

29

23

Total

123

102

2.5 Non-cancellable operating lease rentals for leased properties are payable as follows:
2018

2017

£’000

£’000

657

411

Between one and five years

1,798

-

More than five years

2,172

-

Total

4,627

411

Less than one year

2.6 The sole director for the period received no remuneration for his role as a director of
the company. He received £1.5m (2017: £0.8m) as a director of Group subsidiaries from
LMAX Limited.
2.7. Remuneration paid to the auditors is as follows:
2018

2017

£’000

£’000

- the audit of the Company’s annual accounts

60

10- of financial statements of subsidiaries’ pursuant to legislation

114

75

- assurance services for subsidiaries

66

63

Total

240

148

Fees payable to the Company’s auditors for the audit:

34

Notes to consolidated financial statements

Annual Report December 2018 | LMAX Exchange Group Limited

Notes to consolidated financial statements
2. Profit before tax (cont.)
2.8 Prior year restatement

2017 As originallypresented

IAS 37
adjustment

2017*(Restated)

£’000

£’000

£’000

Revenue

30,839-30,839

Cost of sales(5,049)1,078(3,971)Gross profit

25,7901,078

26,868Administrative expenses(21,256)-(21,256)

Operating profit

4,534

1,078

5,612

Financial income

436

-

436

Financial expenses

(14)

-

(14)

Profit before tax

4,956

1,078

6,034

Taxation

(903)

-

(903)

Profit for the year

4,053

1,078

5,131

Foreign currency translation differencesforeign entities(239)

Equity holders of the parent

3,814

(239)

1,078

4,892

*The prior period balances have been restated to adjust for an error in the recognition of a provision for future operating losses in
LMAX Limited. This is in line with the restated disclosed in the standalone financial statements of LMAX Limited.

Notes to consolidated financial statements

35

LMAX Exchange Group Limited | Annual Report December 2018

Notes to consolidated financial statements
3. Taxation
2018

2017

Current tax:

Note

£’000

£’000

UK corporation tax charge on profits for the year

1,588

399

Adjustment in respect of prior year period

(393)

(2)

Total current tax

1,195

397

244

515

Deferred tax:
Deferred tax - origination and reversal of timing differences3(9)

Total deferred tax

3.1

247

506

Tax per income statement

3.2

1,442

903

Prior year adjustments

3.1 The deferred tax credit for the year has been recognised on all timing differences between
the carrying value treatment of assets and liabilities and the associated tax allowances.
Deferred tax was recorded using the rate substantively enacted rate at the balance sheet dateof 19.0%. The deferred tax credit has been a result of:
2018

2017

£’000

£’000

Provision at the start of the period

(27)

(532)

Charge to the profit and loss account

247

505

Total deferred tax charge

220

(27)

Deferred tax (assets)/liabilities:

3.2 A significant part of the deferred tax assets and liabilities are based in the UK jurisdiction.
The current tax charge for the year is than the standard corporation tax in the UK of 19.0%.
The differences are explained below:
Factors affecting total tax charge on the current period

2018

2017

£’000

£’000

The charge for the year can be reconciled to the profit per the income statement as follows:
Profit before tax for the period - continuing activities

8,676

6,034

At standard rate of corporation tax in the UK of 19.00%

1,648

1,161

-

(298)

38

26

Prior year adjustment

(206)

(12)

Deferred tax - changes in taxes

(38)

25

-

1

1,442

903

Effects of:
Non taxable income
Expenses not deductible for tax purposes

Rounding
Tax charge for the period

36

Notes to consolidated financial statements

Annual Report December 2018 | LMAX Exchange Group Limited

Notes to consolidated financial statements
4. Capital re-organisation
On 03 January 2018, the brokerage business of LMAX Limited was demerged into a newly
incorporated and regulated entity called LMAX Broker Limited. As part of the capital reduction
demerger the share premium and reserves of LMAX Limited were converted to Distributablereserves, permitted under section 641(1)(a) Companies Act 2006. Pursuant to the capital
reduction LMAX Limited transferred the brokerage business to LMAX Broker Limited in exchange
for the issue of shares by LMAX Broker Limited to the ultimate shareholders, and as a result £12m
of LMAX Limited’s reserves were transferred as issue of capital in LMAX Broker Limited. Hamsard
3297 Limited “Hamsard” remained the 63.65% majority shareholder of the two entities and its
subsidiaries (“LMAX Group”).
LMAX Exchange Group Limited “LEG” (a Jersey incorporated entity) was established on 21
December 2017 as the new group holding company. LEG was dormant, until 1 February 2018
when LEG acquired the entire share capital of Hamsard in exchange for the issue of shares in
LEG to each of the ultimate shareholders of Hamsard. The Hamsard shareholders were issued
shares in the same class and proportion as their shareholding in Hamsard so the shareholdingsof LEG following completion of the share for share exchange were identical of the shareholdingsof Hamsard immediately prior to the share for share exchange. On consolidation the £1mshare capital in Hamsard offsets the same capital in LEG and the share premium and reserves
are transferred to the Distributable reserve as part of the subsequent wind down of Hamsard
instructed on 18 December 2018.
At the same time, LEG acquired the 63.65% of the shares in the LMAX Group from Hamsard 3297
Limited at market value. The transaction gave rise to a significant intercompany payable from
LEG to Hamsard 3297 Limited which was only eliminated as part of the winding down process ofHamsard.
On 1 February 2018, LEG also obtained third party funding to acquire 31.35% minority
shareholding of the LMAX Group from The Sporting Exchange Limited (part of the Betfair Group)
making LEG 95% majority shareholder of the LMAX Group. As a result, £4.9m of net assets weretransferred from minority interest to the Group’s reserve as shown within the Statement ofchanges in Equity and the difference between the total consideration and net assets acquired has
been recognised against the demerger reserve.

Notes to consolidated financial statements

37

LMAX Exchange Group Limited | Annual Report December 2018

Notes to consolidated financial statements
5. Intangible assets
Purchased
SoftwareDeveloped
SoftwareTotal Intangible
Assets

£’000

£’000

£’000

Balance at 31 December 2017

181

12,664

12,845Additions

375

3,117

3,492

Balance at 31 December 2018

556

15,781

16,337

Balance at 31 December 2017 (Restated)(100)(9,013)(9,113)

Amortisation for the year(95)

(2,633)(2,728)

Balance at 31 December 2018

(195)

(11,646)(11,841)

at 31 December 2017

81

3,651

3,732

at 31 December 2018

361

4,135

4,496

Cost

Accumulated amortisation

Carrying value

38

Notes to consolidated financial statements

Annual Report December 2018 | LMAX Exchange Group Limited

Notes to consolidated financial statements
6. Property, plant and equipment
Leaseholdimprovements

Computerequipment

Fixtures, Total property,
furniture
plant, andand fittingsequipment

£’000

£’000

£’000

£’000

Balance at 01 January 2017

398

7,232

149

7,779

Additions

26

1,075

-

1,101

Balance at 31 December 2017

424

8,307

149

8,880

Balance at 01 January 2017

(398)

(5,851)(108)(6,357)

Depreciation for the year(8)

(1,128)(16)(1,152)(406)(6,979)(124)(7,509)

424

8,307

149

8,880

Additions

-

1,855

57

1,912

Disposals-(4,474)-(4,474)

424

5,688

206

6,318

Balance at 01 January 2018(406)

(6,979)(124)(7,509)Depreciation for the year

(17)

(906)

(18)

(941)

-

4,474

-

4,474

(423)

(3,411)(142)(3,976)at 31 December 2017

18

1,328

25

1,371

at 31 December 2018

1

2,277

64

2,342

Cost

Accumulated depreciation

Balance at 31 December 2017

Cost
Balance at 01 January 2018

Balance at 31 December 2018

Accumulated depreciation

Disposals
Balance at 31 December 2018

Carrying value

Notes to consolidated financial statements

39

LMAX Exchange Group Limited | Annual Report December 2018

Notes to consolidated financial statements
7. Trade and other receivables

2018

2017

£’000

£’000

Trade debtors

7.1

856

551

Other debtors

7.2

1,564

573

-

335

40,127

24,726948

969

43,495

27,154--43,495

27,15443,495

27,154

Research & development tax grant
7.3

Collateral requirement for trade clearing
Prepayments and accrued income
Total
Classification:
Non-current
Current
Total

7.1 The aging of trade receivables at the year end date is as follows:
31 December 2018

Current

1-30 Days 31-60 Days 61-90 Days 90 Days past
past duepast duepast due due or more

Total

Expected loss rate

0.3%

1.6%

3.6%

6.6%

10.6%

Gross Carrying amount trade receivables (£’000)

818

(13)

19

12

20

856

2

-

1

1

2

6

Loss allowance

The loss allowance as at 31 December 2018 (on adoption of IFRS 9) was determined as above fortrade receivables. For details of movement in allowance for impairment in refer to note 13.1 fordetails.

7.2. Other debtors have no fixed terms of repayment, are interest free and have no security
provided.
7.3. Collateral comprise of balances held with the prime brokers at the period end.

40

Notes to consolidated financial statements

Annual Report December 2018 | LMAX Exchange Group Limited

Notes to consolidated financial statements
8. Inventories

Other assets - market value of crypto currencies held by the Group

2018

2017

£’000

£’000

10,352-

Total crypto currencies balance held by the Group includes £9.1m held on behalf of clients of
LMAX Digital.

9. Cash and cash equivalents

Cash and cash equivalents

2018

2017

£’000

£’000

50,65929,760Cash and cash equivalents comprise of bank balances held by the Group on a short-term basis withoriginal maturity of three months or less. The carrying amount of these assets approximates theirfair value.
The Group holds client funds in segregated client trust bank accounts. The group does notrecognise these bank accounts or the related client liability on the balance sheet. At the end of theyear, total funds held in these accounts was £83.6m.

Below is an analysis of the change in net funds:

Opening balance at 1 January 2018
Net cash movement
Balance at 31 December 2018

Cash and cash
equivalents

Collateral*

Transfer of
title funds

Net funds

£’000

£’000

£’000

£’000

29,76024,726(39,507)

14,97920,89925,753(43,424)

3,228

50,65950,479(82,931)

18,207*Collateral balance includes the balances held with the Prime Brokers and other assets.

Notes to consolidated financial statements

41

LMAX Exchange Group Limited | Annual Report December 2018

Notes to consolidated financial statements
10. Trade and other payables
Note

2018

2017 (Restated)

£’000

£’000

Transfer of title funds

10.1

82,931

39,507Loan

10.2

17,750

-

5,583

4,595

1,037

70

Trade creditors

642

122

Taxation and social security

314

192

Derivative contracts

23-

108,280

44,486

Non-current

15,390-Current

92,89044,486108,280

44,486

Accruals and deferred income
Finance leases

Total

10.3

Classification:

Total

10.1
Title transfer funds are held by the Group under a Title Transfer Collateral Arrangement, by whicha client agrees that full ownership of such monies is unconditionally transferred to the Group.
These funds would be immediately transferable back to the client on request. No interest is
payable to the client for these funds.

10.2
The loan includes a revolving credit of £5m and a term debt of £12.75m. The remaining term of thedebt is 3 years and 1 month.

10.3
The Group’s computer equipment suppliers have provided financing arrangements for equipment
purchase directly from them. The terms of the financing arrangements have been recorded as
financing leases with the corresponding asset capitalised in property, plant and equipment. The
financing arrangements have terms of three years, are repayable on a quarterly basis and haveeffective interest rates of 0.8% to 4.8%.

42Notes to consolidated financial statements

Annual Report December 2018 | LMAX Exchange Group Limited

Notes to consolidated financial statements
11. Related party transactions
Internal controls are in place to ensure that any related party transactions including directors or
their connected persons are carried out on an arm’s length basis and are properly recorded.
Identified related parties
Identified related parties include:› Director of the company› Directors of subsidiaries. These directors received no fees from their directorships, but were
paid salaries for services rendered to the subsidiaries in accordance with their employment
contracts› Supplier, Mobile Trading Partners LLP, of which David Mercer is a member› Client Directa S.I.M.p.A, due to their 5% shareholding in LMAX Limited and LMAX Broker
Limited during the period› Group companies including: subsidiaries listed in note 2 to the Company accounts
2018

2017

Key management personal compensation

£’000

£’000

Short-term employee benefits

1,450

795

Total

1,450

795

BalancesAmounts due from shareholder of LMAX Exchange Group Limited
Amount due from shareholder of Hamsard 3297 Limited*

114

-

-

122

461

279

Transactions
Mobile Trading Partners LLC mobile application development*Previous holding company

12. Post balance sheet event
15 January 2019, LMAX Hong Kong Limited notified the Hong Kong Securities and Futures
Commission (“SFC”) of its intention to deregulate in advance of winding down the entity.
On 15 April 2019 LMAX Digital Broker Limited received the full Distributed Ledger Technology(“DLT”) licence from the Gibraltar Financial Services Commission (“GFSC”) to operate the crypto
currency exchange.
Following the Cyprus Securities and Exchange Commission’s (“CySec”) approval, on 1 July 2019
LMAX Broker Limited became 100% owners of a regulated Cypriot entity, LMAX Broker Europe
Limited (previously known as CB Capital Limited).
On 1 July 2019, LMAX Exchange Group Limited purchased 4.5% minority shareholding previously
held by Directa S.I.M.p.A and associates, making it 99.5% shareholder of LMAX Limited, LMAX
Broker Limited and its subsidiaries.
Notes to consolidated financial statements

43

LMAX Exchange Group Limited | Annual Report December 2018

Notes to consolidated financial statements
13. Financial instruments
13.1 Credit risk
As a provider of leveraged financial instruments, clients are only required to deposit sufficientmargin on their accounts to enable them to trade on the platform, whilst still being fully exposed tothe position in the market. As a result, losses can exceed funds on account when there are sudden
and unexpected price movements exposing the Group to the risk of potential expected credit loss
where customers are unable to fund their losses.
This risk is managed by setting appropriate margin levels and position limits per currency pair.
Risks specifically around pegged instruments and emerging market currencies are monitored
and have margin rates increased where it is deemed necessary. Clients’ positions are actively
monitored and are requested to adjust their positions when positions sizes expose the Groupto too much risk. Clients are encouraged to hold a diversified portfolio thereby further reducing
risk. Risk management procedures & policies and technology are designed to limit financial
repercussions from such events.
The Group is also exposed to credit risk for financial assets included in trade and other receivables
and cash and cash equivalents. The maximum exposure to credit risk is represented by the
carrying amount of each financial asset in the statement of financial position. The Group’s cash andcollateral is held across four separate financial institutions with Moody’s credit ratings indicating
they are low credit risk.
The movement in the allowance for impairment in respect of trade receivables during the year was
as follows:
2018
Balance as at 01 January

2017 (restated)

£’000

£’000

1,192

1,282

Provision recognised during the year

1,325

-

Provision released during the year

(1,192)-

Amounts written off(1,144)(90)

Other movements*

165

-

Total

346

1,192

The allowance for impairment and movement in bad debt provision is based on expected credit loss
model as required under IFRS9. For further information on restated balances, please see note 2.8.
Other movement includes foreign exchange movement on the provision provided during the year.

44

Notes to consolidated financial statements

Annual Report December 2018 | LMAX Exchange Group Limited

Notes to consolidated financial statements
13.2 Liquidity risk
The company’s policy is to regularly monitor its liquidity requirements to ensure that it maintains
sufficient reserves of cash and adequate committed lines of funding from major financial
institutions and/or from other group companies to meet its liquidity requirements in the short andlonger term.

£’000

£’000

£’000

£’000

£’000

Carrying
amount(assets)/
liabilities£’000

Trade payables

642

-

-

-

642

642

Taxation and social
security
Transfer of title
funds
Finance leases
liabilities

314

-

-

-

314

314

82,931---

82,931

82,931

198

198

397

244

1,037

1,037

Loan

1,500

1,500

3,000

11,75017,75017,750Accruals anddeferred income

5,583

-

-

-

5,583

5,583

Total nonderivatives

91,168

1,698

3,397

11,994

108,257

108,257

Derivative
contracts

23

-

-

-

23

23

Total

23

-

-

-

23

23

Trade payables

122

-

-

-

122

122

Taxation and social
security
Transfer of title
funds
Finance leases
liabilities
Accruals anddeferred income

192

-

-

-

192

192

39,507---39,50739,507

70

-

-

-

70

70

5,673

-

-

-

5,673

5,673

45,564---45,56445,564

Derivative
contracts

-

-

-

-

-

-

Total

-

-

-

-

-

-

At 31 December
2018

Less than 6 6-12 months
months

Between 1
and 2 years

Between 2
and 5 years

Total
contractual
cash flows

Non-derivatives

Derivatives

At 31 December
2017
Non-derivatives

Total nonderivatives
Derivatives

Notes to consolidated financial statements

45

LMAX Exchange Group Limited | Annual Report December 2018

Notes to consolidated financial statements
13.3 Interest rate risk
The Group has an interest-bearing borrowing of £17.8m. This includes a revolving credit facility of£5m and term debt of £12.75m. The weighted average rate of interest is 6%. The remaining termof the debt is 3 years and 1 month from the reporting period end date.
Sensitivity Analysis: The group is exposed to interest rate risk on all interest rate sensitive
instruments which includes financial assets and liabilities. The interest rate risk profile of theGroup’s financial assets and liabilities at the end of each year was as follows:
Financial assets:

2018

2017

£’000

£’000

Cash and cash equivalents

50,65929,760Collateral balances held at Prime Brokers

40,127

24,726

Borrowings(17,750)-

Total

73,03654,486

Financial liabilities:

Interest rate sensitivity analysis has been performed on the floating rate financial instruments byconsidering a 25 basis points (0.25%) interest rate decrease on the financial assets and a 25 basis
points increase on the financial liabilities held at the period end date.
£’000
Non-current
Impact:Cash and cash
equivalents

Client collateralbalances

Borrowings

(127)

(100)

(44)

As shown in the table above, in the adverse circumstance of interest rate decrease on the cash
holdings and an increase in the interest rate on interest bearing borrowings the group would havethe net outflow of £271k.

13.4 Price risk
As at the end of the reporting period one of the Group’s subsidiary LMAX Bullion Limited held
some open metal and commodities contracts under its proprietary trading business valued at fairvalue through the income statement. The Group is thus exposed to the risk that the fair value ofthese financial instruments (see note 13.2) will fluctuate due to the changes in market prices of theunderlying instrument. The sensitivity analysis was conducted based on a 5% decrease in price,and the impact was not deemed to be material.

46

Notes to consolidated financial statements

Annual Report December 2018 | LMAX Exchange Group Limited

Notes to consolidated financial statements
13.5 Foreign currency risk
The financial assets and liabilities of the Group are held predominantly in British Pounds, US
Dollars, Euros, Japanese Yen, Australian Dollars and Hong Kong Dollars. Cash and collateralbalances are actively monitored and converted so as to maintain as best as possible a net neural
position in all non-British Pound currencies. Where this cannot be achieved forward exchange
contracts are entered into to limit foreign currency risk. The currency exposures of financial assets
and liabilities are as follows.

TOTAL

GBP

USD

EUR

JPY

AUD

SGD

HKD

Other

£’000

£’000

£’000

£’000

£’000

£’000

Cash and cash
equivalents

50,6596,876

30,930

2,488

4,930

2,984

285

507

1,659

Crypto currencies
held

10,352-

10,352

-

-

-

-

--

Collateralrequirement for
trade clearing

40,1274,600

30,882

4,645

-

-

-

-

-

Trade debtors

856

27

842

(13)

-

-

-

-

-

Transfer of title
funds(83,562)(5,530) (63,109) (11,783)(492)(1,977)

-

(1)

(670)

Trade creditors

(642)

(473)

(152)

(8)

(23)

10

19

(6)

(9)

Net exposure

17,790

5,500

9,745

(4,671)

4,415

1,017

304

500

980

The derivative contracts are forward exchange contracts which mature within three months of thebalance sheet date. The fair value of these contracts was nil at the year end.
Sensitivity analysis

Impact on post tax profit
2018

2017

£'000

£'000

USD value appreciates 5%

464

337

USD value depreciates 5%

(513)

(373)

EUR value appreciates 5%

(223)

89

EUR value depreciates 5%

245

(98)

JPY value appreciates 5%

210

(8)

JPY value depreciates 5%

(233)

9

As shown in the table above, the group is primarily exposed to changes in USD EUR and JPY
against GBP. The sensitivity of profit or loss to changes in the currencies arises mainly from cash
and cash equivalents.

Notes to consolidated financial statements

47

LMAX Exchange Group Limited | Annual Report December 2018

Notes to consolidated financial statements
13.6 Fair value
At the end of the reporting period the Group holds financial instruments held at amortised costand fair value. The financial instruments carried at amortised cost are not materially different fromtheir fair value as at 31 December 2018. The financial instruments held by the Group valued at fairvalue are shown below based on the fair value hierarchy levels 1 to 3 on the degree to which fairvalue is observable.

At 31 December 2018

Level 1

Level 2

Level 3

Total

£'000

£'000

£'000

£'000

-

10,352-

10,352Financial assets-Inventories 13.6a (i)Financial liabilities-Trade payable 13.6a(ii)At 31 December 2017

(7,590)(7,590)

-

2,762

-

2,762

Level 1

Level 2

Level 3

Total

£'000

£'000

£'000

£'000

-

-

-

-

-

-

-

-

-

-

-

-

Financial assets-Inventories
Financial liabilities- Trade payable

13.6a (i) The inventories above; as also presented in Note 8 relates to the unsecured crypto assets
held by the Group’s subsidiary LMAX Digital Exchange Limited. These crypto assets include £7.6m
on behalf of clients’, £1.7m under economically hedged positions against crypto CFD’s and balance£1.1m on account of proprietary trading.
13.6a (ii) The trade payable as presented in Note 10 includes £16.2m due by LMAX Digital
Exchange Limited to its clients; of which trade payable of £7.6m presented above relates to clients’
crypto assets holdings valued at fair value and balance £8.6m relates to clients’ trade positions
denominated in USD.
The balances are stated at fair value with any movement posted through the income statement.
The fair value is determined based on the end of day exit prices which are derived from the endof day executed trades on the LMAX Trading platform, an active platform where transactions
take place with sufficient frequency and volume. A high number of the transactions on theplatform are limit orders placed by market makers, thus quoted prices reflect only executed
trades and are considered to be the exit prices. Fair value is derived based on observable market
data; however, these are adjusted where relevant to reflect a sufficient level of activity andvolume in the calculation of the closing price. These balances are accordingly classified as Level 2

48

Notes to consolidated financial statements

Annual Report December 2018 | LMAX Exchange Group Limited

Notes to consolidated financial statements
financial instruments under IFRS, however as these adjustments are not significant to the entire
measurement, they are not classified as level 3 in the fair value hierarchy.
13.6a(i) shows the value of crypto currency assets held by the Group and had been fair values
through the income statement.
13.6a(ii) shows the total client liabilities due to clients of LMAX Digital Exchange Limited relating
to the crypto currency inventory stated in 13.6a(i).
The Group’s exposure to the risk of fair value changes on the financial instruments held under
economically hedged positions is evaluated as not material and the risk on proprietary trading isassessed below based on the sensitivity analysis performed considering a 10% decrease in themarket prices of crypto assets and open crypto CFD positions.
Sensitivity analysis:

Impact:Year ended 31st Dec 2018 (£’000)
On proprietary trading(26)

13.7 Capital management
The Group’s primary objective when managing capital is to safeguard the Group’s ability tocontinue as a going concern. In addition, the Group is required to maintain regulatory capital at
subsidiary level which depends on the jurisdiction in which it is incorporated and operates. In eachcase the approach is to hold an appropriate surplus over the local minimum.
The highest capital requirements arise from the two UK regulated entities where minimum capitalis determined in accordance with the Financial Conduct Authority through the requirements of
CRD IV, as well as the newly created entity in Gibraltar which was regulated as a full Distributed
Ledger Technology (“DLT”) licence from the GFSC to operate the crypto currency exchange in April
2019 and the CySec regulated entity acquired in July 2019 (see note 12 for details).
The Group’s capital structure is regularly reviewed and managed with due regard to overall capitalrequirements and the requirements of each subsidiary. Adjustments are made to the capital
structure in light of changes in conditions affecting each subsidiary, to the extent that these do notconflict with any of the directors’ fiduciary duties.

14. Developments in reporting standards and implementations
Standards and interpretations affecting the reported results or the financial position
The following standards and interpretations have applied for the first time to the financial
reporting periods commencing on or after 1 January 2018:

Notes to consolidated financial statements

49

LMAX Exchange Group Limited | Annual Report December 2018

Notes to consolidated financial statements
IFRS 9 – Financial instruments
IFRS 9 Financial Instruments has replaced IAS 39 Financial Instruments: Recognition andMeasurement is effective for periods beginning on or after 1 January 2018 and was endorsed by
the EU in 2016.
Impairment
IFRS 9 introduces a revised impairment model which requires entities to recognise expectedcredit losses based on unbiased forward-looking information, replacing the existing incurred
loss model which only recognises impairment if there is objective evidence that a loss is alreadyincurred. The IFRS 9 impairment model is applicable to all financial assets at amortised cost,lease receivables, debt financial assets at fair value through OCI, loan commitments and financial
guarantee contracts. This contrasts to the IAS 39 impairment model which is not applicable to loan
commitments and financial guarantee contracts (these were covered by IAS 37). In addition, theIAS 39 Available for Sale assets model is not fully aligned to the model for amortised cost assets.
IFRS 9 requires the recognition of lifetime expected credit losses for financial instruments forwhich the credit risk has increased significantly since initial recognition. If the credit risk has notincreased significantly since initial recognition 12 month expected credit losses are recognised,being the expected credit losses from default events that are possible within 12 months after thereporting date.
Expected credit losses are the unbiased probability of default weighted average credit losses
determined by evaluating a range of possible outcomes and forecast future economic conditions.
Credit losses are the expected cash shortfalls from what is contractually due over the expected lifeof the financial instrument, discounted at the effective interest rate.
Under IFRS 9, impairment is recognised earlier than is the case under IAS 39 because it requires
expected losses to be recognised before the loss event arises. Measurement involves increased
complexity and judgement including estimation of probabilities of defaults, loss given default, a
range of unbiased future economic scenarios, estimation of expected lives, estimation of exposuresat default and assessing increases in credit risk. It is not considered practical to disclose reliablefinancial impact estimates until the implementation programme is further advanced.
The group has assessed the impact of IFRS 9 on the financial statements and concluded the results
in note 7.1.
IFRS 15 – Revenue from contracts with customers
IFRS 15 is effective for periods commencing on or after 1 January 2018. The standard wasendorsed by the EU during 2016.

50

Notes to consolidated financial statements

Annual Report December 2018 | LMAX Exchange Group Limited

Notes to consolidated financial statements
Net funding and commission revenue
Group revenue is mainly derived from Commission and Funding charges on the individual client
trades. Under IFRS 15, the group made an assessment as to whether the work performed to earnsuch fees constitutes the transfer of services and, therefore, fulfils any performance obligation(s).
If so, then these fees can be recognised when charged; if not, then the fees can only be recognisedin the period the services are provided. The group has not identified a material impact on the
consolidated financial statements.
Future new standard and interpretations
IFRS 16 – Leases
IFRS 16 will replace IAS 17 Leases and is effective for periods commencing on or after 01 January
2019. The standard has not yet been endorsed by the EU and the group does not plan to adopt thisstandard early. Adoption of the standard is not expected to have a significant impact.
IFRS 16 eliminates the classification of leases as either operating leases or finance leases. The
group will be required to recognise all leases with a term of more than 12 months as a right-of-use
lease asset on its balance sheet; the group will also recognise a financial liability representing its
obligation to make future lease payments.
Although the group has not quantified the impact of adopting the standard, it has conducted an
initial assessment of the potential impact based on its existing lease contracts, all of which will beclassified as operating leases.
15. Registered address and country of domicile
LMAX Exchange Group Limited is a private company limited by shares, incorporated and domiciled
in Jersey.
Registered office:Principle place of business:

LMAX Exchange Group Limited
50 La Colomberie,
St Helier,Jersey,JE2 4QB

c/o LMAX Limited
Yellow Building,
1A Nicholas Road,
London, UK
W11 4AN

Notes to consolidated financial statements

51

LMAX Exchange Group Limited
company financial statements
Period ended 31 December 2018

LMAX Exchange Group Limited | Annual Report December 2018

Company statement of comprehensive income
For the year ended 31 December 2018

Note

2018
£'000

Administrative expenses(108)

Operating loss

(108)

Financial income

243,491

Financial expenses(1,104)

Profit before tax

42,279-Taxation
Profit for the year

42,279-Other comprehensive (expense)/income
Total comprehensive income for the year

42,279Total comprehensive expense/(income) attributable to:42,279Equity holders of the parent-

Non-controlling interest

The results shown above are derived wholly from continuing operations.
There was no current or deferred tax charge for the company during the current year. (The current
tax charge for the year is lower than the standard rate of corporation tax in the UK of 19.00% due
to surrendered losses under group relief).
The notes on pages 57 to 60 form an integral part of these financial statements.

54

Company statement of comprehensive income

Annual Report December 2018 | LMAX Exchange Group Limited

Company statement of financial position
Note

2018

3

67,019rade and other recei ables

4

114

Cash and cash equi alents

5

20

or the year ended

DecemberNon-current assets
Investments

Current assets

Total assets

67,153

Non-current liabilities
rade and other payables

6(14,750)

6(9,124)Current liabilities
rade and other payables
Total liabilities(23,874)

Net assets

43,279EquityShare capital

7

1,000

etained earnings

42,279Equity attributable to equity holders of the parent

43,279Non-controlling interest-

Total equity

he notes on pages

43,279toform an integral part of these financial statements

hese financial statements were appro ed by the oard on
behalf of the oard byanuaryand were signed on

Da id ercer Director and C
anuaryCompany statement of financial position

55

LMAX Exchange Group Limited | Annual Report December 2018

Company statement of changes in equity
Share
capitalRetainedearnings

Total parent
equityTotalequity

£'000

£'000

£'000

£'000

Total comprehensive income for the year-

42,27942,27942,279Total comprehensive income for the year-

42,27942,27942,279Issue of shares

1,000

-

1,000

1,000

Total distributions to owners

1,000

-

1,000

1,000

Balance at 31 December 2018

1,000

42,27943,27943,279For the year ended 31 December 2018

Company statement of cash flows
For the year ended 31 December 20182018

Cash flows from operating activities£'000

Operating loss

(108)

(Increase) in trade and other receivables(114)

Increase in trade and other payables

23,874

Net cash from operating activities

23,652

Cash flows from investing activities
Investment in subsidiaries(67,019)

Financial income

44,491

Net cash used in investing activities(22,528)

Cash flows from financing activities
Issued shares

1,000

Finance expense(2,104)

Net cash used in financing activities(1,104)

Net increase in cash and cash equivalents

20

Cash and cash equivalents at end of year

20

The notes on pages 57 to 60 form an integral part of these financial statements.

56

Company statement of changes in equity and cash flows

Annual Report December 2018 | LMAX Exchange Group Limited

Company notes to the financial statements
1. Accounting policies
The financial statements have been prepared and approved by the Directors in accordancewith International Financial Reporting Standards (IFRS) and International Financial Reporting
Committee (IFRIC) Interpretations as adopted by the European Union (EU) (together “adopted
IFRS”).
The accounting policies are consistent with the Group accounting policies set out on pages 19 to
22. Accounting policies specific to the company are as follows.
Investment in subsidiaries
Investments in subsidiaries have been accounted for at cost.
2. Financial income
Financial income is derived from the intercompany balance due to Hamsard 3297 Limited (oldholding company), which was eliminated on wind down of the entity. Hamsard 3297 Limited was a
subsidiary of the Group in the reporting period, hence the financial income has been eliminated on
consolidation. The balance also includes £1M of investment write down in Hamsard 3297 Limited.
3. Investments in subsidiaries
2018
£’000
Investment in LMAX Limited and LMAX Broker Limited

67,019The Company holds 569,123 of 599,077 shares in LMAX Limited representing 95% shareholding.
The Company also holds 569,123 of 599,077 shares in LMAX Broker Limited representing 95%
shareholding and 100 of 100 shares in LMAX Digital Group Limited (incorporated on 15 Mar2018) representing 100% shareholding.
LMAX Limited, LMAX Broker Limited and LMAX Digital Group Limited have subsidiaries which arealso subsidiaries of the company.
All the Group’s subsidiaries are shown on the next page. The ordinary shares held % shown is theeffective shareholding which the company holds in the underlying subsidiary.

Company notes to the financial statements

57

LMAX Exchange Group Limited | Annual Report December 2018

Company notes to the financial statements
Subsidiary

Country ofIncorporation

Principal
activity

Ordinary shares
held No.

Ordinary shares
held %

LMAX Limited

EnglandFinancial exchange
platform

569,123

95

LMAX Broker
LimitedEngland

Dormant

569,123

95

LMAX Bullion
LimitedHong Kong

Bullion broker

1,000

100

LMAX Hong
Kong Limited

Hong Kong

Foreign exchange
broker

32,000,000

95

LMAX Japan
Co. Limited

Japan

Sales presence

1

100

LMAX New
Zealand Limited

New Zealand

Softwaredevelopment

1,000

100

LMAX PTE. Limited

Singapore

Sales presence

1

100

LMAX USA
Incorporated

Delaware, USA

Development of US
market

1,000

100

LMAX Digital
Group Limited

JerseyHolding company

100

100

LMAX Digital
Exchange Limited

JerseyDigital currency
exchange platform

10,000100

LMAX Digital
Broker Limited

Gibraltar

Digital currency
exchange broker

1,000

100

LMAX Markets Inc

Cayman Islands

Dormant

50,000100

4. Trade and other receivables
2018
£’000
114

Amounts due from shareholder-

Inter-group receivables
Total

114

Trade and other receivables have no fixed terms of repayments, are interest free and have nosecurity provided.

58

Company notes to the financial statements

Annual Report December 2018 | LMAX Exchange Group Limited

Company notes to the financial statements
5. Cash and cash equivalents
2018
£’000
Cash and cash equivalents

20

Cash and cash equivalents comprise of bank balances held by the Company.

6. Trade and other payables
2018
£'000
Accruals and deferred income

18,111

Inter-group payables

5,763

Total

23,874

Classification:
Non-current

14,750Current

9,124

Total

23,874The inter-group payable is due to the Group’s subsidiaries and has no fixed terms of repayment, isinterest free and no security has been provided.

7. Share capital
2018
£’000
Allotted and called up
100,000,000 Ordinary shares of £0.01 each

1,000

100% ordinary shares are held by management team and directors.

Company notes to the financial statements

59

LMAX Exchange Group Limited | Annual Report December 2018

Company notes to the financial statements
8. Related parties
Related parties of the company are the same as those of the Group. There were no intercompany
transactions affecting profit or loss. Balances with related parties of the company are as follows:

Note

2018
£'000

Amounts due from shareholder

114

Amounts due from Affinity Trust(2)

Amounts due to Group companies

8.1(5,761)

Related party balances have no fixed terms of repayments, are interest free and have no security
provided.
8.1 Amounts due to Group companies
2018
£'000
BalancesAmounts due to group companies:- LMAX Exchange Limited(466)- LMAX Broker Limited(5,295)Total(5,761)

9. Post balance sheet events
In addition to the post balance events disclosed in Note 12 of the Group financial statements,
LMAX Broker Limited declared a £9m dividend to LMAX Exchange Group Limited on 31 March
2019 which settled the intercompany payable between the two entities.
The Company also subscribed to an additional £1 share in LMAX Limited to increase its sharecapital by £4m.

60

Company notes to the financial statements

Annual report and consolidated financial statements - for the year ended 31 December 2018
PDF available for download at www.LMAX.com/AR2018
LMAX Group is a trading name of LMAX Exchange Group Limited - Jersey registration number 125453
the holding company of LMAX Limited, LMAX Broker Limited and LMAX Digital Broker Limited
LMAX Exchange is a trading name of LMAX Limited, which operates a multilateral trading facility, authorised and regulatedby the Financial Conduct Authority (firm reference number 509778) and is a company registered in England and Wales(number 6505809)
LMAX Global is a trading name of LMAX Broker Limited which is authorised and regulated by the Financial Conduct
Authority (firm reference number 783200) and is a company registered in England and Wales (number 10819525)
LMAX Digital is a trading name of LMAX Digital Broker Limited, authorised and regulated by the Gibraltar
Financial Services Commission (license number FSC1342B) and is a company registered in Gibraltar (number 117528)

LMAX Exchange Group Ltd,50 La Colomberie, St. Helier,Jersey, JE2 4QB, Channel Islands.
www.LMAX.com | info@LMAX.com | +44 20 3192 2555
© 2019 LMAX Exchange Group Ltd