Notes to the financial statements

24. Capital management

The Group acts as an interdealer broker in international markets and is supervised by the FSA under the terms of the EU CRD. In March 2007, the Group obtained a waiver from the consolidated capital adequacy tests which otherwise would have had the effect of removing intangible assets arising on consolidation from the computation of capital resources. The waiver runs for five years to the end of March 2012.

The Group does not operate any proprietary trading activities and, as such, its capital demands when compared to other financial institutions are both relatively low and stable. The Group’s Pillar 1 regulatory capital surplus calculated in accordance with the waiver is relatively stable and is currently in excess of £700m. While higher levels of market volatility have resulted in increased demand for the Group’s brokerage and post-trade services, the fact that much of this incremental business has occurred in markets which operate on a name give-up basis or are cleared through a central counterparty has had limited impact on the Group’s capital resource requirement and, as such, absent a material acquisition or change in the basis of computation, existing capital resources are viewed as sufficient to both operate and grow the business.

The Group manages its capital to ensure that entities in the Group meet their local regulatory requirements, while maximising the return to shareholders through the optimisation of the debt and equity balance. The capital structure of the Group consists of debt which includes borrowings (note 21), cash and cash equivalents (note 32(b)) and equity (note 27). At 31 March 2009, the Group’s net debt was £126m (2008 – £59m) (note 32).

The Group’s finance committee reviews the capital structure on a regular basis. As part of this review, the committee considers the cost of capital and the risks associated with each class of capital. Based on the recommendations of the committee, the Group balances its overall capital structure through the payment of dividends, new share issues and share buy backs, as well as taking on new debt or refinancing existing debt.

A number of the Group’s trading companies are subject to regulation in the jurisdiction in which they operate, principally by the FSA in the UK and the SEC/FINRA in the US. All such companies have complied with their regulatory capital requirements throughout the year.