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CITIGROUP GLOBAL MARKETS LIMITED

(Registered Number: 01763297)

ANNUAL REPORT AND FINANCIAL STATEMENTS

for the year ended 31 December 2014

CITIGROUP GLOBAL MARKETS LIMITED DIRECTORS' REPORT

for the year ended 3 I December 20 I 4

The Directors present their

(the for the year ended

and the audited financial statements of

December 2014.

Global Markets Limited

Business environment

The of and is authorised

(FCAJ and PRA.

the Prudential

Citi conducts its business two segments: Citicorp,

Group (ICG; and Global Consumer Bank (GCB) businesses; and Citi Holdings. of businesses and

of assets that Citi has determined are not central to its core Citicorp businesses. Clients choose Citi for its

global footprint, market position. in-country relationships and full range of solutions through its extensive suite of

products and services.

The is Citi's international broker-dealer. 1be Company's business is almost entirely wholesale in nature,

falling within the ICG segment of Citi's operations. Within Europe, the Middle East and Africa (EMEA), Citi's

ICG segment has one of the market's largest fixed income, currency. commodity and equity sales and trading

platforms, offering clients liquidity and hedging capabilities across the full range of products as well as capital

markets and other investment banking and advisory services. The Company is instrumental in offering many of

these services not only in EMEA. but also globally. Citi maintains a physical presence in 55 countries in EMEA

and also serves clients in a number of other countries where it has no physical presence. A more detailed

description of the Company's activities is set out in the Strategic Report.

Citi operates its businesses across many legal vehicles globally, including the branches and subsidiaries of Citibank

N.A and also its broker-dealer network. Bank chain entities 1

are subject to US legislative measures providing

protection to deposit taking institutions and their subsidiaries, while non-bank chain entities2

are not.

There are certain businesses, particularly within the ICG segment, that transact both on broker-dealer and bank

chain entities. Customer transactions may be recorded on either set of vehicles, although typically the risks carried

by such businesses are centralised in one place. Front office, support and technology costs may be booked on a

legal entity other than the entity in which the associated revenues are recorded. There are a number of transfer

pricing agreements in place within Citi that move either costs or revenues between different legal vehicles to ensure

that the entities are compensated for their involvement in transactions. The Company is a party to a number of

these agreements and this is discussed in more detail in the Strategic Report.

Going concern basis

The financial statements are prepared on a going concern basis taking into account the Company's existing capital

and liquidity resources and the level of reliance placed on support from the Company's ultimate parent. The

Directors acknowledge the risk that extreme circumstances might adversely impact the Company's ability to

continue trading and are satisfied that the Company has the resources to continue in business for the foreseeable

future. In making this assessment, the Directors have considered a wide range of information relating to present

and future conditions. Given the ultimate reliance support of the referred to the

CITIGROUP GLOBAL MARKETS LllVIITED DIRECTORS' REPORT for the year ended 31 December 2014

Risk Management

The has elected to include information on financial risk management as per Schedule 7 6( I l(aJ (h)

the and Medium-sized and Regulations 2008'' in the as the directors

consider financial risk management to be of

Statement of Directors' responsibilities The Directors are responsible for preparing the Strategic Report and the Directors'

statements in accordance with applicable law and regulations.

and the financial

law requires the Directors to prepare financial statements for each financial year. Under that law they

have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted

Accounting Practice (United Kingdom Accounting Standards and applicable law).

Under company law the Directors must not approve the financial statements unless they are satisfied that they

a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.

In preparing these financial statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently:

• make judgments and estimates that arc reasonable and prudent:

• state whether applicable United Kingdom Accounting Standards have been followed, subject to any

material departures disclosed and explained in the financial statements; and

• prepare the financial statements on a going concern basis unless it is inappropriate to assume that the

Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the

Company's transactions, disclose with reasonable accuracy at any time the financial position of the Company, and

enable them to ensure that the financial statements comply with the Companies Act 2006. They have general

responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to

prevent and detect fraud and other irregularities. Legislation in the United Kingdom governing the preparation and

dissemination of financial statements may differ from legislation in other jurisdictions.

Directors The Directors who held office during the year ended 31 December 2014 were:

Non-Executive

1 P Asquith (Chair)

DJ Challen (resigned 31 March 2014)

S H Dean

M L Jones (appointed 8 September 2014)

DL

CITIGROUP GLOBAL MARKETS LIMITED DIRECTORS' REPORT for the year ended 31 December 2014

the suney.

Note 9 'Share-based incentive

Statement of Directors' responsibilities (continued)

in incentive schemes as described in

Employment of disabled people The is committed to a of recruitment and without

discrimination of any kind. for disabled persons are

regard to the aptitudes and abilities of each Efforts are made to enable any

disabled during employment to continue their careers within the Training, career development and

of disabled persons are, as far as identical to those available to other who arc not

disabled.

Diversity is as one of the key values. The Company therefore fosters a culture where the

best people want to work. where people are promoted on their merits. where respect for others is demanded and

valued and where opportunities to develop are widely available to all regardless of differences. The Company

maintains a workplace with different backgrounds, perspectives and ideas and provides employees with a wide

range of experiences and skills to develop to their full potentiaL Citi's code of conduct prohibits discrimination and

harassment

Environment The Company recognises the importance of its environmental responsibilities. monitors its impact on the

environment. and designs and implements policies to reduce any damage that might be caused by its activities.

Initiatives designed to minimise the Company's impact on the environment include safe disposal of waste. recycling

and reducing energy consumption.

Political contributions No political contributions were made during the year (2013: $nil).

Disclosure of information to auditors In accordance with, and subject to all the provisions of. section 418 of the Companies Act 2006. it is stated by the

Directors who held office at the date of approval of this Directors' Report that

• so far as each is aware, there is no relevant audit information of which the Company's Auditors are

unaware; and

• each Director has taken all the steps that he I she ought to have taken as a director to make himself I herself

aware of any relevant audit information and to establish that the Company's Auditors are aware of that

information.

Auditors Pursuant to Section 487 of the

will therefore continue in

Act 2006, the auditors will be KPMGLLP


STRATEGIC REPORT

for the year ended 3 J December 2014

The Directors present the of the for the year ended 31 December 2014.

Overview, principal activities and governance

is in London and operates

with the remainder from Asia and the Americas.

the of its business from the

The has eleven branch offices and five subsidiaries. The Company's branches in the European Union

(EU) were established under the 1993 Investment Services Directive. which has been superseded by the 2005

Markets in Financial Instruments Directive (MiFID). These branches arc located in France. Greece.

Ireland. Italy. Spain. Sweden and the Czech and Slovak Republics. The Company has made notit!eations to the

PRA to conduct cross-border MiFID services into all European Economic Area (EEA) states. Additionally. the

Company has non-EU branches in Dubai. Israel and Switzerland as well as subsidiaries in Luxembourg. Monaco

and South Africa.

EU Branches

• France

• Greece (in liquidation)

• Ireland

• Italy

• Spain

• Sweden

• Czech Republic

• Slovak Republic (closed in 1anuary 2015)

Non-EU branches

• Switzerland

• Dubai

• Israel

Subsidiaries

• Citigroup Global Markets Luxembourg LLC (Luxembourg)

• Citigroup Global Markets Funding Luxembourg SCA (Luxembourg)

• Citigroup Global Markets Funding Luxembourg S.a.R.L. (Luxembourg)

• Citi Global Wealth Management S.A.M (Monaco)

• Citigroup South Africa Credit Products (Proprietary) Limited (South Africa)

The Company is a dealer. market maker and underwriter in equities. fixed income securities and commodities, and

provides investment banking and advisory services to a wide range of corporate. institutional and government

clients. The Company's trading activities. which are part of Citi's Markets and Securities Services division within

the ICG segment. encompass cash. exchange traded and Over The Counter (OTC) derivative markets. The

l'nnn:rPrn;u·ti'''' are banks. other investment firms. managers. insurers and


STRATEGIC REPORT


Overview, principal activities and governance (continued)

EME4 and the Company's governance structure

-- -----------L-----------.----------------

BRCC refers ro the Business Risk Compliance and Comrols Committee.

Business review and financial results

The 2014 financial results provided evidence of further progress towards the objective of sustainable profitability

for the Company throughout the business cycle.


STRATEGIC REPORT

for the year ended 31 Decem her 2014

Business review and financial results

Company's performance

Commission income and fees

Net dealing income

Interest receivable

Interest payable

Gross profit

Operating expenses

Other income and expenses

Operating profit/(loss) on ordinary activities

before taxation

2014 2013 Change Change

$Million $ :\:Jillion $ I\lillion in%

2,195 !.618 577 36t7r,

731 1.085 (354) (33'!::)

773 897 ( 124) ( 14'!::)

(638) 159

3,061 2,803 258 9%

(2.955) (3.021) 66 2Si

7 9

113 (209) 322 N/A

Gross Profit

Total income, including interest receivable and payable, was $3,061 million, representing a 9'/t increase from the

previous year.

Commission income and fees increased to $2,195 million from $L618 million. 2014 saw an increase in revenues

from intermediation activity in the Rates and G 10 FX businesses, between a number of institutional clients and

Citibank NA. in response to the implementation of a set of US regulations governing the OTC derivatives market.

In addition the improved gross profit reflected higher capital markets earnings due to a recovery in primary market

activity.

Net dealing income decreased from $1,085 million to $731 million. During the year the Equities business' client

revenues were offset by losses on certain inventory positions. In addition, 2014 saw some valuation adjustments

relating to financing transactions in the Commodities business.

Net interest income increased from $100 million in 2013 to $135 million in 2014. The Company benefited from

savings in interest expense on intercompany subordinated debt. These savings were offset by a decrease in interest

income within Credit Markets.

Operating Expenses

The Company remained committed to executing on the Citi-wide priorities of efficient resource allocation and

disciplined expense management. Company management actively monitored expenses, carefully managing

expense reduction exercises while taking account of investments necessary for the future.

CITIGROUP GLOBAL MARKETS Lll\UTED

STRATEGIC REPORT

for tht: year ended 31 December 2014

Business review and t'inancial results (continued)

Intercompany Revenue and Expemes

party:

revenue and expense from transactions with other Citi entities,

There were four main revenue transfer agreements to which the

• intermediation fees fees from other entities, for the usage of the ''""m"'"'" • trading management fees - fees from other entities for services by the

Company:

• investor sales expected value - fees from other entities. where products have been sold by sales people

employed by the Company: and

• investment banking allocation of Global Investment Banking revenue. based upon the location of

Investment Banking staff.

Further details of the Company's intercompany revenues can be found in the Other I Corporate section of Note 32

'Segmental Disclosures'.

Expenses relating to operations. technology, support functions (including finance, risk, legal and compliance. audit

and human resources) and senior management costs were allocated out to businesses and legal entities based on a

number of criteria. As part of the allocation process. the Company both paid and recovered expenses. All of these

transfer pricing arrangements undergo regular review for appropriateness and global consistency. This resulted in a

regularisation reflected in 2014 of some prior year transfer pricing arrangements with other Citi entities.

Balance Sheet

Company's position at 31 December

2014 2013 Change Change

$ !Ylillion $1Ylillion $Million in%

Fixed assets 259 271 (12) (4%)

Current assets 364,902 234,002 130.900 56%

Debtors: amounts due after more than one year 29 13 16 123%

Creditors: amounts falling due within one year 348,105 217.219 130.886 60%

Total assets less current liabilities 17,085 17,067 18 0%

Creditors: amounts falling due after more 4.202 4,360 (158) (4%)

than one year

Provisions for liabilities 119 56 63 112%

Net pension asset (6%)

Neta'isets 108 1%

CITIGROUP GLOBAL lVIARKETS Lll\tfiTED

STRATEGIC REPORT


Business review and financial results (cominued)

Key performance indicators

In addition to the financial results of the senior management considers the

financial and non-financial items critical to the future: '"""uwt<Jl

and future

Regulatory Capital

2014

2013

Change

$ lVtillion $Million $Million

Tier 1 12.754 12.794

(40)

Tier 2 capital 4,080 4,086 (6)

Tier 3 capital (234) 234

Deductions (871) (265) (606)

Total regulatory capital resources 15.963 16,381 (418)

The Company's regulatory capital is held to meet minimum capital standards as set by the PRA in its Individual

Capital Guidance. Management maintains a sufficiently strong and stable capital balance, in excess of the

regulatory requirements, and monitors the Company's capital balance to ensure an excess is maintained at all

times.

Tier I capital encompassed tangible shareholders' funds less certain capital deductions. Under CRD IV. Tier 3

capital became ineligible from l January 2014. At 31 December 2013 Tier 3 capital comprised the unaudited loss

for the year. The increase in capital deductions in 2014 was primarily driven by the inclusion of holdings in

capital instruments of other financial sector entities under CRD IV.

Throughout the year, the Company's minimum regulatory capital requirements were met by its available capital

resources.

Details surrounding the Company's capital management policies and procedures are set out in Note 28 'Financial

instruments and risk management'.

Subsequent to the 2014 year-end, an additional $1.55 billion in Tier 2 capital, in the form of subordinated debt,

was injected into the Company.

Liquidity

CITIGROUP GLOBAL MARKETS LIMITED STRATEGIC REPORT


Risk management - overview

utilises Citi's risk management model and

processes and systems to ensure robust

management and controls, to ensure local

for the

CitL and the believe that effecti vc risk management is of Citi' s risk management process is been designed to monitor, evaluate and manage the principal risks

it assumes in its activities, Specifically, the activities that the Company engages in, and the risks those

activities generate, must be consistent with the underlying commitment to the principles of ''Responsible Finance",

"Responsible Finance" denotes conduct that is transparent prudent and dependable, and that delivers better

outcomes for Citi's clients and society. In order to achieve these princi pies, Citi establishes and enforces

expectations for its risk-taking activities through its risk culture, through detlned roles and responsibilities and

through its supporting policies, procedures and processes that enforce these standards.

While the management of risk is the collective responsibility of all employees, Citi and the Company assign

accountability into three lines of defence:

• first line of defence: the business owns all of its risks and is responsible for the management of those

risks;

• second line of defence: the Company's control functions (e.g., risk. finance, compliance, etc.) establish

standards for the management of risks and effectiveness of controls; and

• third line of defence: Citi's internal audit function independently provides assurance, based on a risk

based audit plan, that processes arc reliable and governance and controls are effective.

Risk Culture

The Company's risk management framework is designed to balance business ownership and accountability for

risks with well-defined independent risk management oversight and responsibility. The Company applies Citi's

global risk management framework, tailored as appropriate for the Company, based on the following principles

established by the Chief Risk Officer:

• a defined risk appetite, aligned with business strategy;

• accountability through a common framework to manage risks;

• risk decisions based on transparent, accurate and rigorous analytics:

• a common risk capital model to evaluate risks;

• expertise, stature, authority and independence of risk managers; and

• risk managers empowered to make decisions and escalate issues.


STRATEGIC REPORT

for the year ended 31 December 201 4

Risk management- oveniew rcontinucd)

Roles and

The risk management framework aims the range of the business

corporate with risk management functions within each business.

managers at the for and implementing risk

management and practices within their business, for the risk in their business, and for

responding to the needs and issues of their business. This ensures the active management of the principal risks of

the Company.

Since the financial cns1s in 2008, both Citi and the Company"s risk management and internal governance

processes have undergone significant improvements in all major areas. These include more credit

assessments and credit re\iew of obligors; enhanced identification of risk and heightened controls over business

and reporting processes through a formal Manager's Control Assessment (MCAJ process; implementation of a

formalised operational risk scenario analysis process; and enhancement of comprehensive entity stress testing.

Entity specific risk management and oversight have been put in place, and control and governance processes

continue to evolve in line with the best practices specific to the Risk domain.

Review practices and governance committees are detailed in Note 28 'Financial instruments and risk management'

starting on page 51.

Risk management - principal risks

The Company's principal risks arise from the diverse services provided to its clients and include both financial and

non-financial risks. The main risks covered by the Company's risk management framework are market risk,

funding and liquidity risk, credit and counterparty default risk (including country and concentration risk).

operational risk (including franchise and reputational risk) and regulatory risk and developments.

The following principal risks have been identified by management.

Market risk

Price risk losses arise from tluctuations in the market value of trading and non-trading positions resulting from

changes in interest rates, credit spreads, foreign exchange rates, equity and commodity prices, and in their implied

volatilities. Through its activity as a broker-dealer with a global reach to clients and a highly dynamic trading

activity the Company's trading results are particularly exposed to movements in these market factors.

Each business that uses the Company in client facing transactions is required to establish. with approval from

market risk management, a market risk limit framework for identified risk factors. This framework must clearly

define approved risk profiles and remain within the parameters of Citi's overall risk appetite. The limits thus

established are monitored by independent market risk management. In all the businesses are ulttul•w::ty

for the taken for within defined


STRATEGIC REPORT


Risk management- principal risks (continued)

Credit and cmmterparty default risk

Credit risk is the from the failure bmrower coumerparty to honour its

Credit risk arises from the and reverse

and lending transactions and

Credit risk also arises from settlement and clearing activities. when the Company transfers an asset in advance of

receiving its counter-value or advances funds to settle a transaction on behalf of a client. Concentration risk.

within credit risk. is the risk associated with having credit exposure concentrated within a specific client. industry.

region or other category. Credit risk is one of the most risks the faces as an institution. As a

result. Citi has a well established framework in place for managing credit risk across all businesses. This includes a

defined risk appetite. credit limits and credit policies. both at the business level as well as at the firm-wide level.

Citi"s credit risk management also includes processes and policies with respect to problem recognition. including

'·watch lists," portfolio review. updated risk ratings and classification triggers.

Operational risk

Operational risk is the risk of Joss resulting from inadequate or failed internal processes, systems, human factors or

from external events.

It includes the reputation and franchise risk associated with business practices or market conduct in which Citi is

involved.

Operational risk is inherent in the Company's and Citi's global business activities, as well as the internal processes

that support those business activities, and can result in losses arising from events related to the following, among

others:

fraud, theft and authorized activities;

employment practices and workplace environment;

clients, products and business practices;

physical assets and infrastructure; and

execution, delivery and process management.

Where applicable, losses stemming from fines and regulatory penalties are ineluded in the relevant categories

above, which are consistent with the Basel framework.

In recent years there has been an increased focus internally and from the public and regulators with regard to the

identification, measurement and management of the operational risk of large financial institutions. This focus was

the that the the of 2008 as well as number


STRATEGIC REPORT


Risk management - principal risks

Regulatory risk and developments

risk is the risk of or

and increased

environment continues to evolve, Citi and the Company remain committed to implementing new

to ensuring compliance vvith The most

develooments assessed by the Company are:

• Capital Requirements Directive (CRD IV)

• Bank and Resolution Directive (BRRD)

• Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act)

• European Market Infrastructure Regulation (E.\HR)

• Markets in Financial Instruments Directive (MiFlD) and Regulation on Markets in Financial Instruments

(MiFTR)

Specific details of the above are included in Note 28 'Financial instruments and risk management' starting on page

51.

Future outlook

The Company's strategy continues to focus on developing and enhancing the depth and quality of service to its

core clients in the markets in which it operates. The Company's strategic objectives must he executed against a

backdrop of continued uncertainty arising from an uneven global economic recovery, a changing competitive and

technology environment, and evolving regulatory requirements, coupled with changes in fiscal and monetary

policies, both within the United States and globally.

The Company is well-positioned to address the impact of these uneven external trends and remains poised for

future growth by leveraging Citi's product depth, geographic breadth and scalable technology platforms. The

Company's strategy centres on the following guiding principles:

• Putting the client at the centre of its business model:

• Embracing leading practices in bank governance, risk management and control;

• Harnessing its capabilities in markets where it has competitive advantages; and

• Responding and adapting to changes in the economic, regulatory and competitive environment.

These will enable it to deliver valuable services to its clients and exploit business opportunities while ensuring

effective risk management, robust and control

of

INDEPENDENT AUDITOR'S REPORT TO THE MEMBER OF CITIGROUP GLOBAL

MARKETS LIMITED

20!4 set out on pages 15 to 69.

law and United

Markets Limited for rnr>r>rtinH framework that has been

Standards

This report is made to the Company's member, as a in accordance with Chapter 3 of Part 16 of the

Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's member those

matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent

permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's

member, as a body, for our audit work. for this report, or for the opinions we have formed.

Respective responsibilities of Directors and Auditor As explained more fully in the Directors' Responsibilities Statement set out on pages 3 and 4. the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view.

Our responsibility is to audit, and express our opinion on, the financial statements in accordance with applicable

law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the

Auditing Practices Board's (APE's) Ethical Standards for Auditors.

Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the Financial Reporting Council's web site at www.frc.org. uk/auditscopeukpri vate.

Opinion on financial statements In our opinion the financial statements:

• give a true and fair view of the state of the Company's affairs as at 31 December 2014 and of its profit for

the year then ended;

• have been properly prepared in accordance with United Kingdom Generally Accepted Accounting

Practice; and

• have been prepared in accordance with the requirements of the Companies Act 2006.

Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Strategic Report and the Directors' Report for the financial year for which the financial statements are prepared is consistent with the financial statements.

Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report

to you if, in our opinion:

• adequate accounting records have not been kept, or returns for our audit have not been received

from branches visited

..

http://www.frc.org.uk/auditscopeukprivate

CITIGROUP GLOBAL MARKETS LllVIITED

PROFIT AND LOSS ACCOUNT for the year ended 31 December 20!4

2014 2013

Notes $ !\Jillion $!\Jillion

Commission income and fees

Net income

Interest receivable

Interest payable

Gross profit

4 2.195 1.618

6 731 1.085

5 773 897

5

3.061 2.803

Operating expenses

Other finance income/( expense)

Other income

Operating profit/(loss) on ordinary activities before taxation

Tax on profits/(losses) on ordinary activities

Profit/(loss) for the financial year

7

8

ll(a)

(2.955) (3.021)

4 (3)

3 12

!13 (209)

(3) (25)

110 (234)

The accompanying notes on pages 18 to 69 form an integral part of these financial statements.

CITIGROUP GLOBAL IVIARKETS LIMITED

STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES (STRGL) for thc ycar ended 31 Dccemher 2014

2014 2013

Notes $:Million $Million

Profit/(loss) for the financial year

Nct movement in STRGLin respect ofthe scheme

Total for the financial year

110 (234)

8 5 (50)

115 (284)

RECONCILIATION OF MOVEMENTS IN SHAREHOLDER'S FUNDS for the year ended 3 I December 2014

2014 2013

Notes $:Million $Million

Pro tit/(loss) tor the tinancia1 year 11 () (234)

Capital Contribution 27

Share based payment transactions 9

Other recognised gains/(losses) relating to the year (net) 8

(8)

5

3.000

(83)

(50)

Opening shareholder's funds 12.754 10.119

Oosing shareholder's funds 12.861 12,754

The accompanying notes on pages 18 to 69 form an integral part of these financial statements.

CITIGROUP GLOBAL 1\1ARKETS LIMITED

BALANCESHEET as at 31 December :2014

Fixed assets

2014 2013

Notes $Million $Million

fixed assets 12 :219 221

Fixed Asset Investments 13 40 50

259 271

Current assets

Debtors 15 114304 111.623

Investments 17 249.027 119.574

Cash at bank and in hand 19 1.571 2.805

Debtors: amounts due after more than one year

Debtors 15 29 13

364.931 234.015

Creditors:amounts falling due ""ithin one year

Creditors 21 348,105 217.219

348.105 217.219

Net current assets 16.797 !6.796

Total assets, less current liabilities 17,085 17,067

Creditors: amounts falling due after more than one year

Creditors 21 122 !60

Subordinated loans 24 4,080 4.200

4.202 4.360

Provisions for liabilities 25 119 56

Net assets excluding net pension asset !2.764 12,651

Net pension asset 8 97 103

Net assets 12,861 !2,754

Capital and reserves

Called up share capital 26 1.500 1.500

Capital reserve 27 9,989 9,989

Profit and loss 27


NOTES TO THE FINANCIAL STATEMENTS

1. Principal accounting policies

(a) Basis of presentation

The tlnancial statements have been in accordance with UK

the Act 2006. The financial statements have been nn••n•Tn•rl

the

• derivative and trading financial instruments arc measured at fair value; and

• financial instruments designated at fair value through or loss arc measured at fair value.

Practice and

The risks and uncertainties faced by the Company arc discussed further in the Directors' Report and Strategic

Report on pages l to 13, including details on where ro find information about the risks faced by the Company's

parent. The Directors acknowledge and accept the intent and ability of Citi to >upport to the if

required and consequently present these financial statements on a going concern basis.

The principal accounting policies have been applied consistently throughout the current and preceding year.

Forthcoming clumges to accounting standards:

The Financial Reporting Council (FRC) revised the financial reporting standards for the United Kingdom and

Republic of Ireland. This revision fundamentally reforms financial reporting, replacing almost all extant standards

with three Financial Reporting Standards which are effective for periods beginning on or after 1 January 2015.

• FRS 100 "Application of Financial Reporting Requirements" sets out a new financial reporting regime

explaining which standards apply to which entity and when an entity can apply the reduced disclosure

framework.

• FRS 101 "Reduced Disclosure Framework" sets out the disclosure exemptions for the individual financial

statements of subsidiaries, including intermediate parents, and ultimate parents that otherwise apply the

recognition, measurement and disclosure requirements of EU-adopted International Financial Reporting

Standards (JFRS).

• FRS 102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland" based on the

IFRS for SMEs, with amendments for application in the UK and Republic of Ireland.

For periods beginning 1 January 2015, the Company will adopt FRS 101. The adoption is not expected to result in

significant changes to assets, liabilities and shareholders' equity of the Company as at I January 2015.

Other matters:

The financial statements have been prepared in US Dollars, which is the functional currency of the Company, and

any reference to$ in these financial statements refers to US Dollars.




{b) Financial instruments

assets and liabilities

Financial instruments that have been for the purpose of in the near term. or form part

of a financial instruments that are and which there is evidence of short term

ate classified as "held for Financial assets classified as "held for trading" include

coilateralised transactions, government bonds, eurobonds and other corporate bonds,

certificates of deposit, commercial paper and derivatives. Financial liabilities classified as "held for

include securities sold but not yet collateralised transactions and derivatives.

assets and liabilities are initially at fair value on settlement date and subsequently re-measured

at fair value. changes in fair value between trade date and settlement date are reported in the profit and loss

account. Gains and losses realised on disposal or redemption and unrealised gains and losses from changes in fair

value are reported in the profit and loss account.

Derivative contracts

Derivative contracts used in trading activities are recognised at fair value on the date the derivative is entered into

and are subsequently re-measured at fair value. All derivatives ate carried as assets when fair value is positive and

as liabilities when fair value is Gains and losses realised on disposal or redemption and unrealised gains

and losses from changes in fair value are reported in the profit and loss account

Repurchase and resale agreements Repurchase and resale agreements are treated as collateralised financing transactions. Securities which have been

sold with an agreement to repurchase continue to be shown on the balance sheet and the sale proceeds are recorded

as a collateralised financing transaction within creditors. Securities acquired in purchase and resale transactions

are not recognised in the balance sheet and the purchase is recorded as a collateralised financing transaction within

debtors. The difference between the sale price and the repurchase price is recognised over the life of the

transaction and is charged or credited to the profit and loss account as interest payable or receivable. Assets and

liabilities recognised under collateralised financing transactions ate classified as "held for trading" and are

recorded at fair value, with changes in fair value reported in the profit and loss account

Financial instruments designated at fair value

Financial instruments, other than those held for trading, are classified as fair value through profit and loss when

they meet one or more of the criteria set out below, and are so designated by management. The Company may

designate financial instruments at fair value when this will:

• eliminate or significantly reduce valuation or recognition inconsistencies that would otherwise arise from

measuring financial assets or financial liabilities, or recognising gains and losses on them, on different

bases;



1. Principal accounting policies (continued)

(b) Financial instruments (continued)

The Company has elected to the fair value to certain corporate bonds on

part of a that is "w'"'t"u and evaluated on a fair value basis.

basis that such bonds are

rff1,•Jm•Jm assets

Financial assets other than those which are classified as ''held for or at fair value

profit and loss·· are classified as loans and receivables. Loans and receivables trade debtors, including

settlement receivables. and are initially recognised at fair value direct and incremental transaction costs

and subsequently measured at amortised cost using the effective interest rate method.

At each date the Company assesses whether there is evidence that financial assets carried at

amortised cost are impaired. A financial asset or a group of financial assets is impaired when objective evidence

demonstrates that a loss event has occurred after the initial recognition of the asset(s). and that the loss event has

an impact on the future cash tlows of the asset(s) that can be estimated reliably.

Objective evidence that financial assets are impaired can include significant financial difficulty of the debtor or

other observable data such as adverse changes in the payment status of debtors, or economic conditions that

correlate with defaults of the debtor.

Impairment losses on assets carried at amortised cost are measured as the difference between the carrying amount

of the financial asset and the present value of estimated future cash flows discounted at the asset's original

effective interest rate. Impairment losses are recognised in profit or loss and retlected in an allowance account

against loans and receivables. Interest on impaired assets continues to be recognised through the unwinding of the

discount. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment

loss is reversed through profit or Joss. The Company writes off loans and receivables and fixed asset investments

when they are determined to be uncollectible.

Other financial liabilities and subordinated loans Financial liabilities and subordinated loans are measured at amortised cost using the effective interest rate, except

those which are "held for trading". which are held at fair value through the profit and loss account.

Determination of fair value

Where the classification of a financial instrument requires it to be stated at fair value, this is determined by

reference to the quoted market value in an active market wherever possible. Where no such active market exists

for fhe particular instrument, the Company uses a valuation technique to arrive at the fair value, including the use

of prices obtained in recent arms' length transactions. discounted cash tlow analysis, option pricing models and

other valuation techniques commonly used by market participants. See Note 14 ·Financial assets and liabilities

accounting classifications and fair values' for further details.

CITIGROUP GLOBAL l\1ARKETS LIMITED NOTES TO THE FINANCIAL STATEJ\IENTS


(b) Financial instruments

are

has transferred its contractual

all the risks and rewards of

w receive cash flows from the assets has or when the

to receive the cash !lows of the financial assets and either

have been transferred or all the risks and rewards

have neither been retained nor transferred but control is not retained.

If the Company enters into a transaction that results in it retaining all of the risks and rewards of a

financial asset it will continue to recognise that financial asset and will recognise a financial liability equal to the

consideration received under the transaction.

In transactions in which the Company neither retains nor transfers substantially all the risks and rewards of

ownership of a financial asset and it retains control over the asset, the group continues to recognise the asset to the

extent of its continuing involvement, determined by the extent to which it is exposed to changes in the value of the

transferred asset.

Financial liabilities are derecognised when they are extinguished, that 1s when the obligation 1s modified,

discharged, cancelled or expired.

(c) Physical commodities

Physical commodities are initially recognised at fair value on settlement date and subsequently re-measured at fair

value. Realised gains and losses on sales of commodities inventory are included in Net dealing income.

(d) Commission income and fees

Commission revenues and expenses are recognised when the right to consideration has been obtained in exchange

for performance.

(e) Interest receivable and payable

Interest income and expense is recognised in the profit and loss account for all financial assets classified as loans

and receivables and non-trading financial liabilities, using the effective interest rate method.

Interest arising on financial assets or financial liabilities that are "held for trading" or "designated at fair value" is

reported within interest income and expense respectively.

(f) Net dealing income

CITIGROUP GLOBAL MARKETS LIMITED NOTES TO THE FINANCIAL STATEMENTS


(h) Fixed asset investments

Investments in

permanent.

are stated at cost. less any write down for diminution in value as

at fair value on settlement date and re-measured

(i) Taxation

The charge for taxation is based on the taxable for the year and takes into account taxation deferred

because of timing differences between the treatment of certain items for taxation and accounting purposes.

Deferred tax assets are recognised to the extent that it is more likely than not that there will be suitable taxable

profits from which the future reversal of the underlying timing differences can be deducted. Full provision is

made for deferred tax assets and liabilities arising from timing differences between the recognition of gains and

losses in the tlnancial statements and their treatment for tax purposes except as otherwise provided by FRS 19 on

an undiscounted basis.

(j) Pension and other post retirement benefit costs

The Company operates both a defined benefit and a defined contribution pension scheme.

The cost of the Company's defined contribution pension scheme is the amount of contributions payable in respect

of the year. For defined benefit obligations, the current service cost and any past service costs are included in the

profit and loss account within operating expenses and the expected return on the scheme's assets, net of the impact

of the unwinding of the discount on scheme liabilities. is included within other finance income. The post

retirement benefit surplus or deficit is included on the balance sheet. net of the related deferred tax. Actuarial

gains and losses are recognised in the statement of total recognised gains and losses. These include differences

between the expected and actual return on scheme assets and differences which arise from experience and

assumption changes.

(j) Pension and other post retirement benefit costs (continued)

Under FRS 17 paragraph 41, net asset surpluses can only be recognised on the balance sheet if the surplus can be

recovered either by a refund to the Company (which must have been agreed at the balance sheet date) or by the

reduction of future employer contributions. FRS 17 specifies that the maximum amount that can be recognised in

respect of the reduction of future contributions is the present value of the liability expected to arise from future

service. net of employee contributions.

currencies

CITIGROUP GLOBAL "MARKETS LIMITED NOTES TO THE FINANCIAL STATEMENTS


(I) Share-based incentive plans

The Inc. shanc:-based incentive

Pursuant to a separate Stock Plans Affiliate

makes a cash settlement to Citi for the fair value of the share-based incentive awards

under these

The Company applies equity-settled accounting for its share based incentive plans, with separate accounting for its

associated to make payments to Citigroup Inc. The Company the fair value of the awards at

grant date as compensation expense over the vesting period with a credit to the intercompany payable to Citigroup

Inc. All amounts paid to Citigroup Inc. and the associated obligations are recognised over the vesting period.

Subsequent changes in the fair value of all unexercised awards are reviewed annually and any changes in value are

recognised in the equity reserve, again over the vesting period. The SPAPA is also updated annually.

For Citi's share based incentive plans that have a graded vested period each "tranche" of the award is treated as a

separate award. Where a plan has a cliff vest, the award only has a single '"tranche". The expense is recognised

as follows:

% of expense recognised

Vesting Period of Award

2 Years (2 Tranches)

Year 1

75%

Year2

25%

Year3 Year4

2 Years (1 Tranche) 50% 50% 3 Years (3 Tranches) 61'K 28% 11% 3 years (I Tranche) 33% 33'K 33% 4 Years (4 Tranches) 52% 27% 15% 6%

4 Years (1 Tranche) 25% 25% 25o/c 25%

Employees who meet certain age plus years of service requirements (retirement eligible employees) may terminate

active employment and continue vesting in their awards provided they comply with specified non-compete

provisions. The cost of share based incentive plans are recognised over the requisite service period. For awards

granted to retirement eligible employees, the services are provided prior to grant date, and subsequently the costs

are accrued in the year prior to the grant date.

EU Short Term awards are a form of Capital Accumulation Program (CAP) awarded to qualifying staff. The

award is accounted for similarly to CAP awards but is delivered in the form of immediately vested restricted

shares subject to a six month sale restriction.

(m) Profit sharing plan

CITIGROUP GLOBAL MARKETS LllVUTED


2. Use of assumptions, estimates and judgements

of are described in detail above.

management to make estimates and that

and the amounts of assets. liabilities. income and expenses.

Actual results may differ from these estimates.

Estimates and are reviewed on an ongoing basis. Revisions to

recognised in the period in which the estimate is revised and in any future periods affected.

estimates arc

Further information about those areas where estimation. uncertainty and the application of critical judgements to

accounting policies have the most significant effect on the amounts recognised in the financial statements are set

out below.

Valuation of financial instruments

The Company's accounting policy for valuation of financial instruments is described in Note I (b). The fair values

of financial instruments that are not quoted in active markets are determined by using valuation techniques. To the

extent practicable, models use only observable data. Where this is not possible, management may be required to

make estimates. Note 14 'Financial assets and liabilities accounting classifications and fair values' discusses

further the valuation of financial instruments.

Credit value adjustment

The Company has a number of financial liabilities that are valued at fair value. Under FRS 26, the Company is

required to consider its own credit risk in determining the fair value of such financial liabilities. Management

judgement is required in determining the appropriate measure of own credit risk to be included in the valuation

model of the financial liability.

Credit valuation adjustments (CVA) and, effective in the third quarter of 2014. funding valuation adjustments

(FV A), are applied to OTC derivative instruments in which the base valuation generally discounts expected cash

t1ows using the relevant base interest rate curve for the currency of the derivative (e.g., LIBOR for uncollateralized

U.S. dollar derivatives). As not all counterparties have the same credit risk as that implied by the relevant base

curve. a CV A is necessary to incorporate the market view of both countcrparty credit risk and Citi's own credit

risk in the valuation. FVA ret1ects a market funding risk premium inherent in the uncollateralized portion of

derivative portfolios and in collateralized derivatives where the terms of the agreement do not permit the reuse of

the collateral received.

Citi' s CV A methodology is composed of two steps. First. the credit exposure profile for each counterparty is

determined using of all individual derivative positions and a Monte Carlo simulation or other

cash flows at future in time. The calculation of this



2. Use of assumptions, estimates and judgements I continued)

Credir value (continued)

credit or

may be reversed or otherwise

risk associated with the derivative instruments.

in future in the event of in the

the Company recorded net CV A losses of $19 million (2013: $63 million losses) due to the

of the credit These were offset a net FVA of$ 22 million (2013: nil) due

to the tightening of Citi's bond spreads throughout 2014. The total recorded in the balance sheet at the

was $180 million 3:$193 million).

Pension

The Company's defined benefit schemes are measured on an actuarial basis. with the key assumptions being

int1ation. discount rate, mortality. and investment returns. Return on assets is an average of expected returns

weighted by asset class. Returns on investments in equity are based upon government bond yields with a premium

to ret1ect an additional return expected on equity investments.

Mortality assumptions are based upon the relevant standard industry and national mortality tables. Discount rates

are based on specific corporate bond indices which ret1ect the underlying yield curve of each scheme.

Management judgement is required in estimating the rate of future salary growth. Ali assumptions are unbiased.

mutually compatible and based upon market expectations at the reporting date.

Share-based incentive plans

Awards granted through Citi's Stock Option Programme are measured by applying an option pricing model. taking

into account the terms and conditions of the programme. Analysis of past exercise behaviour, Citi's dividend

history and historical volatility are inputs to the valuation model. Management judgement is required in estimating

the forfeiture rate.

3. Turnover and results

As permitted by paragraph 4 of Schedule I to the Companies Act 2006 The Large and Medium-sized Companies

and Groups (Accounts and Reports) Regulations 2008 (SI 2008 No 41 0). the format of the profit and loss account

has been adapted to the circumstances of the Company. Instead of turnover. the Directors have reported

commission income and fees. net dealing income and interest income less interest expense in determining the

gross profit of the Company.

CITIGROUP GLOBAL MARKETS Lll\UTED NOTES TO THE FINANCIAL STATEMENTS

4. Commission income and fees

Commission income and fees are derived from

5. Interest receivable and interest payable

Interest recehable comprises:

Interest on current asset investments and collateralised "'""" 'u"' transactions

at fair value through profit and loss

Interest on debtors and cash assets not at fair value and loss

2014 2013

$ i\fillion $ :Vfillion

751 890

"-L 7

773 897

Interest payable comprises:

Interest on collateral held and collateralised financing transactions at fair

value through profit and loss

Interest on borrowings not at fair value through profit and loss

Interest on subordinated debt

414

131

93

377

208

212

Included within interest receivable is interest received on client money.

638 797

6. Gains and losses on tinancial assets and financial liabilities held at fair value through profit and loss

2014 2013

$ JYiillion $Million

Gains and losses on financial assets and financial liabilities held for trading:

Net dealing income

Interest receivable

Interest payable

739 1.120

751 890

(414) (377)

Gains and losses on financial assets "designated at fair value through profit or loss"·

:.Jet (8)


NOTES TO THE F1NANCIAL STATEMENTS

rrrlni<>Vc''i, remuneratiOn 1,260 1.243

Share-based incentive expense (Note 9) 186 224

taxes 166 185

Pension costs defined benefit scheme (Note 8) 10 10

defined contribution scheme 64 57

Depreciation (Note 12)

56

53

Auditor's remuneration:

Audit of these financial statements 0.84 1.25

Audit related assurance services

0.51

0.65

Taxation compliance services 0.09 0.12

7. Operating expenses

include:

2014 2013

$ l'Vfillion $ lVfillion

Amounts receivable by the company's auditor and its associates in respect of:

The Company employed an average of 3,931 (2013: 3,824) employees during the year.

8. Pension costs

Defmed contribution scheme

The Citigroup (UK) Pension Plan was established in September 2000 and provides defined contribution benefits to

all new hires.

Defined benefit scheme

The Citigroup Global Markets Limited Pension and Life Assurance Scheme ("the Scheme'') is a funded pension

scheme providing benefits on both a defined benefit and defined contribution basis. The Scheme is now closed to

new entrants. The assets of the Scheme are held separately from those of the Company, in a trustee administered

fund. Employees are not required to contribute to the Scheme, which is contracted out of the State Earnings

Related Pension Scheme.



8. Pension costs (continued)

1

The financial used in the defined benefit scheme liabilities as at 31 December 2014 are

2014 2013 2012

Discount rate for scheme liabilities

lnt1ation

3.7'/r 4.5'k

3.31/,: 3.3(/'f

Rate of general long-term increase in salaries

Rate of increase to in payment

1.5'7t L5'7t '"' (f - ._1 /(

-Pensions accrued from I May 2005

Pensions accrued prior to I May 2005

2.4% 2.5% 2.4%

3.0% 3.2% 3.0%

In addition to the assumptions on which the Scheme obligation at the balance sheet date is based. it is also

necessary to select expected rates of return on assets. Assumptions that are affected by economic conditions

(financial assumptions) are based on market expectations, at the balance sheet date. for the period over which the

obligations are settled. The overall expected rate of return on assets is derived by aggregating the expected return

for each asset class over the actual asset allocation for the scheme. The expected rate of return on assets (EROA) in

2015 of 3.7% is set at the 2014 year end discount rate. As such. the EROA is provided as the total rate and is not

split by asset category.

The expected return and fair value at the reporting date are set out as follows:

Government bonds

Corporate bonds

Insured Pensions

Other

Total market value of assets

Expected rate of return on assets

Fair wlue

2014 2013 2012

$.Million $ !VIillion $ !VIillion

1,279 937 906

608 592 569

I

19 13 4

1,907 1,543 1,480

3.7% 4.1% 3.6%

Analysis of amounts in and loss account:

2014

!\!Jillion

2013

!\.Jillion

CITIGROUP GLOBAL lVIARKETS LIMITED

NOTES TO THE FlNANCIAL STATEMENTS


of amount in Statement of Total Gains and (STRGL):

2014

$Million

2013

$Million

Actual return less expected return on pens ion scherre assets

Actuarial losses on scherre liabilities

in unrecognised surplus in respect ofFR<; J7 para 41

Impact of foreign

398

(126)

!266)

(21)

(67)

51

(13)

Actuarial gains/(losses) recognised in STRGL

Deferred taxadjustrrent in respect oflosses in STRGL

Total gains/(losses) recognised in STRGL net of tax

29 (50)

(24)

5 (50)

Cumulative amount of pre tax losses recognised in STRGL (486) (515)

Under FRS 17. any surplus in a Scheme can only be recognised on the balance sheet if the surplus can be recovered

either by an agreed refund to the Company or by the reduction of future contributions. As the Scheme is closed to

new entrants. the surplus has been calculated as the present value of the service cost expected to arise over the

average future working lifetime of the active membership resulting in an unrecognised asset of $381 million (2013:

$115 million).

Reconciliation to the balance sheet:

2014 2013

$ :Million $ :Million

Total market value of assets

Present value of scheme liabilities

Net pension asset excluding unrecognised asset

Unrecognised asset due to limit in para 41

Gross pension

1.907 1,543

(1,405) ( 1.325)

502 218

(381) (l15)

121 103




2014 20U

$ $Million

Surplus in scheme at beginning of the year

Current service cost

Contributions

Curtailments

Other tinance income/(expense)

Actuarial gain/(loss)

Foreign exchange adjustment

Change in unrecognised asset due to FRS 17 para 41

Surplus in sch.;me at end of year

!03 Ill

(9) (l(J)

30 34

(!)

4 (3)

272 (88)

(12) 8

(266) 51

121

The impact of para 41 limitation in FRS 17:

2014 2013

$Million $:Million

Fair value of scheme assets

Defined benefit obligation

Net asset

Present value of service cost over next II years

Unrecognisable surplus in respect of FRS 17 para 41

1,907 1.543

(1.405) (1,325)

502 218

(121) (103)

381 115

The changes to the present value of the defined obligation during the year are as follows:

2014 2013

$ J\!Iillion $1\-Iillion

Opening defined benefit obligation

Current service cost

Interest cost

Actuarial losses on scheme liabilities

1.325 1.203

9 10

59 54

126 67

(38)




The to the value scheme

fair value of scheme

2014

$1\lillion

1,543

2013

$Million

1,480

J:::Jq:Jecteo return on scheme assets 63 52

Actuarial scheme assets 398 (21)

30 34

(35) (38)

(92) 36

fair value of scheme assets 1,907

Less unrecognisable surplus in respect of FRS 17 para 41 (381)

1,543

(115)

1,428

The actual return on assets is as follows:

Expected return on assets

Actuarial on scheme assets

2014

$Million

63

398

2013

$Million

52

(21)

Actual return on assets 461 31

The actual return on the pension scheme assets of $398 million was significantly higher than the expected return

of $63 million, which is based on a long-term assumption about the rate of return on assets.

History of experience gains and losses: 2014 2013 2012 2011 2010

$Million $1VIillion $1VIillion $:1\lillion $ IVIillion

Difference between expected and actual return on scheme assets 398 (21) (13) 145 (12)

Gains on scheme liabilities due to experience 9 3 37 due to



9. Share-based incentive plans

remuneration programme it in a number of Citi share-based incentive

of restricted or deferred share awards and share payments. Such awards are used to

attract. retain and motivate officers and to provide incentives for their contributions to the

<>rrm""'" and of Citi. and to their interests with those of the shareholders. The award programmes

Committee of the Inc. Board of Directors. which is

directors.

In the share award program Citi issues common shares in the form of restricted share awards. deferred share awards

and share payments. For all stock award programs during the applicable vesting period. the shares awarded are not

issued to participants (in the case of a deferred stock award) or cannot be sold or transferred by participants the

case of a restricted stock award). until after the vesting conditions have been satisfied. Recipients of deferred share

awards do not have any shareholder rights until shares are delivered to them. but they generally are entitled to

receive payments during the Recipients of restricted share awards are entitled

to limited voting rights and to receive dividends or dividend-equivalent payments during the vesting period. Once a

share award vests the shares become freely transferrable. but in the case of certain employees. may be subjeet to

transfer restrictions by their terms or share ownership commitment.

Certain stock-based awards contain discretionary clawback provisions and are subject to variable accounting. The

associated value of the award tluctuates with changes in Citi's common stock price until the date that the award is

settled, either in cash or shares. Any fluctuation from the grant date value of the award until the award is fully

vested is recognised through the income statement.

(i) Stock award programme

The Company participates in the Citigroup Capital Accumulation Program (CAP), under which shares of Citi

common stock are awarded in the form of restricted or deferred stock to participating employees.

Generally. CAP awards of restricted or deferred stock constitute a percentage of annual incentive compensation and

vest over a three or four year period beginning on or about the first anniversary of the award date. Except in

specific circumstances, continuous employment within Citi is required for CAP and other stock award programs to

vest.

The program provides that employees who meet certain age plus years-of-service requirements (retirement-eligible

employees) may terminate active employment and continue vesting in their awards provided they comply with

speeified non-compete provisions. Awards granted to retirement-eligible employees are accrued in the year prior to

the grant date in the same manner as cash incentive compensation is accrued.

For all stock award programmes. the shares awarded cannot be sold or transferred by the participant during the

applicable vesting period. and the award is subject to cancellation if the participant's employment is terminated.

After the award vests. the shares become transferable to sale restrictions). From the date of

award, the of to the


NOTES TO THE FlNANCIAL STATEMENTS

9. Share-based incentive plans (continued)

(ii) Stock option programme

Stock have not been toCiti as part of the annual incentive award programs since 2009.

In 2009 the Company made grants of to eligible pursuant to the broad-based

Grant (CEOG) Program under the Stock Incentive Plan. Under CEOG. the

vest over three years. the term is 6 years from the grant date and the shares

acquired on exercise are not subject to a sale restriction. To the extent permitted. CEOG granted to eligible

UK were granted under an HMRC approved sub-plan with any excess mer the applicable individual

limit being granted under the global plan. which is not an HMRC approved plan.

In 20 II. outside the annual incentive award programme. Citi granted to certain of its executive officers. The

have six-year terms and vest in three equal annual instalments. The exercise price of the options is $49.10.

equal to the closing price of a share of Citi common stock on the grant date. Upon exercise of the options before the

fifth anniversary of the grant date, the shares received on exercise (net of the amount required to pay taxes and the

exercise price) are subject to a one-year transfer restriction.

The stock option activity with respect to 2014 and 2013 under Citi stock option plans is as follows:

2014 2013

Weighted Weighted

merage average

Options exercise price Options exercise price

$ $

Outstanding, beginning of year 4,535,017 44.50 4,887,279 44.00

Forfeited

(2,393)

244.50

Exercised (673,720) 41.46 (372,155) 40.80

Transfers to/from other Citi entities (38,160) 41.50 23,453 135.08

Expired (20,563) 244.50 ( LI67) 543.80

Outstanding, end of year 3,802,574 43.99 4,535,0!7 44.50

Exercisable. end of year

3,801,878

43.99

4.459,305

44.43


9. Share-based incentive plans

The table summarises the at 31 December 2014:

2014

Options outstanding Options exercisable

Weighted a\erage Weighted Weighted

contractual average average

Range of exercise prices Number

outstanding life

remaining exercise

price Number

Exercisable exercise

price

$ $

<$50.00 3,770,010 1.00 42.98 3,769.314 42.98

$50.01 $399.99 32,564 1.54 161.43 32.564 161.43

3,802,574 1.01 43.99 3,801.878 43.99

The weighted average share price at the exercise date for options exercised during the year was $52.42 (2013:

$43.24).

The following table summarises the stock options outstanding under Citi stock option plans at 31 December 2013:

2013 Options outstanding Options exercisable

Range of exercise prices

Number

Weighted

a\erage

contractual

life

Weighted

average

exercise

Number

Weighted

average

exercise

outstanding remaining price Exercisable price

$ $

<$50.00 4,475,634 1.98 42.62 4,399,922 42.51

$50.00- $399.90 59,383 !.61 186.08 59,383 186.08

4,535,017 1.97 44.50 4,459,305 44.43

Fair value assumptions


9. Share-based incentive plans (continued)

2014 2013

Weighted awrage fair \aloe for options granted during the year SO.OO so.oo

Weighted awrage expected life

life

Valuation assumptions

Expected fper annum)

Risk-free interest rate

E\j:Jected annual dividend yield per share

r·meutotl annual forfeitures

35.69'7r 37.23%

0.35'7, 0.45'1(

0.08'1[; 0.08<7,

9.62% 9.62%

(iii) Profit and loss statement impact

The table below details the profit and loss impact of the share based incentive plans.

2014

$million

2013

$million

Stock A wards

Granted in 2014

132

Granted in 2013 35 157

Granted in 2012 13 43

Granted in 2011 (3) 24

Granted in 2010 (I) (7)

Granted in 2009 & prior (2)

Stock Options

Granted in 2011

8


10. Directors' remuneration

Aggregate emoluments

Contributions to money purchase pension scheme

was follows: 2014 2013

$'000 $'000

4.936 3.564

76

The contributions to the money purchase pension schemes were to four of the Directors (2013: five). Five

of the Directors (2013: five) of the Company participated in parent company share and share option plans and,

during the year. none of the Directors (20!3: none) exercised

The remuneration of the highest paid Director was $2.438.014 (2013: $1.872.397) and accrued pension of $59.620

(2013: $3,222).

The Directors benefited from qualifying third party indemnity provisions in place during the financial year and at

the date of this report.

The above remuneration was based on the apportionment of time incurred by the Directors for services to the

Company, both in their capacity as a Director and. where applicable, their normal employment.

11. Tax on profit on ordinary activities

(a) Analysis of tax charge in the year

Current tax:

Overseas current tax

Adjustment in respect of overseas tax for previous years

Total current tax(Note ll(b))

2014 2013

$Million $ IVlillion

20 21

5

20 26

Deferred tax:

Origination and reversal of timing differences

-UK (24)

-overseas 7

Total defeiTed (17) (I)



11. Tax on profit on ordinary activities (continued)

(b) Factors affecting tax charge for the year

2014

$ l\fillion

2013

$ l\fillion

Prot]t/(]oss) on ordinary activities before tax

Protit/(loss) on ordinary activities multiplied by the standard rate

in the UK of 21.49Sf (2013: 23.25'7r J 24 (49)

Hfects of:

Expenses not deductible for tax purposes

Foreign taxdeductions

Depreciation in excess of capital allowances

Accrued interest paid

Other timing differences

Pensions

Overseas tax in respect of European branch operations and dividends received

Group relief for nil consideration

Losses carried forward

Adjustments in relation to previous years

Current tax charge for year

(c) Factors that may affect future tax charges:

24 20

(4) (5)

15 (8)

(134)

3 6

(6) ( 10)

20 21

179

(56)

5

20 25

The Company has not recognised a deferred tax asset of $347 million (2013: $379 million) in relation to carried

forward losses and timing differences where the recoverability of potential benefits is not considered likely.

The UK Corporate tax rate applying to CGML was 21.49%. Other subsidiaries and overseas branches provided for

taxation at the appropriate rates for the countries in which they operate.

The main rate of corporation tax in the UK was reduced from 23% to 21 'k on I April 2014 and will be further

reduced to 20% on I April2015. The reduction in the corporate tax rate was enacted through the 20!3 Finance Act

on the future



12. Tangible fixed assets

The movement in fixed assets for the was as follows:

Cost

F.quipment

and sofh are

$!\Jillion

Premises

irnprowrnents

$!\:Jillion

Total

$ !\:Jillion

At 1 January 2014

Additions

At 31 December2014

Accumulated depreciation

At 1 January 20!4

Charge for the year (Note 7)

Additions

At 31 December2014

Net book mlue

At 31 December2014

At 31 December2013

13. Fixed asset investments

Cost

At I January

Additions

Disposals

Gains/(losses) recognised in profit and loss account

At 31 December

403

56 459

190

55

2 247

212

213

15 418

56

15 474

7 197

56

2

8 255

7 219

8 221

Unlisted Unlisted

Imestments Imestments

2014 2013

$ Million $ 1\-lillion

50 36

2

(9)

( 1) 12

40 50

The amounts for are included in fixed asset investments:

2014

$'000

2013

$'000



14. Financial assets and liabilities accounting classifications and fair values The

fair values.

their

31 December 2014

Other Total

Held for Designated Loans and amortised carrying

Trading at fair value recehables cost amount Fair value

$Million $Million $!VIi Ilion $Million $Million $1\lillion

Cash 1.571 1.571 1.571

Current investments -14.557 576 45.133 .+5.133

Derivatives 203.894 203.894 203.894

Co1lateralised financing transactions 93.054 93.054 93.054

Cash collateral pledged 11.482 11.482 11.482

Trade debtors 9.459 9.459 9.459

Other debtors 281 281 281

Fixed asset investments 40 40 40

341.505 576 22.793 40 364.914 364.914

Bank loans and overdrafts

Collateralised financing transactions

79.218

10.10-+

\0.10-+

79.218

IO.lW

79.218

Derivatives 203.375 203.375 203.375

Cash collateral held

Securities sold but not yet purchased

32.754 15.4W 15.4W

32.754

15.4W

32.754

Trade creditors 6.276 6.276 6.276

Other creditors and accruals LW3 1.043 1.043

Subordinated loans 4.080 4.080 4.547

Other Total

Held for Designated Loans and amortised carrying

Trading at fair value recehables cost amount Fair alue

31 December 2013

Cash

$1VIillion $l\lillion $l\lillion

2.805

$l\lillion $l\lillion

2.805

$ !VIi Ilion

2.805

Current asset investments 40.529 1.397 41.926 41.926

Derivatives 77.648 77.648 77.648

Collateralised financing transactions 98.874 98.874 98.874

Cash collateral pledged 4.650 4.650 4.650

Trade debtors 7.930 7.930 7.930

Other debtors !30 130 130

Fixed asset investments 50 50 50

2l!.05! !.397 15.515 50 234.013 234.Ql3

CITIGROUP GLOBAL lVIARKETS Ll tiTED NOTES TO THE FINANCIAL STATEMENTS

14. Financial assets and liabilities accounting classifications and fair values (continued)

table shows an of financial assets and liabilities classified as held for or

31 December 2014 l \ell

$Million

I vel2

$Million

l vel3

$Million

Total

$ l\lillion

Hnancial assetheld for trading

Current asset investments

Derivatives

Government bonds

Eurobonds and other corporate bonds

Equities

Physical Commodities


31 201,244 2.619 203.894

20.662 1.228 12 21.902

II i0.621 421 11.053

8.487 1.540 117 10.144

1.458 1.458

92.789 265 93.054

Hnancial assets designated at fair vruue

Current asset investments

Eurobonds and other corporate bonds 576 576

29,191 309.456 3.434 342,081

Hnancialliabilities held for trading

Derivatives

Collatera1ised financing transactions


24 199,802 3,549 203,375

79,218 79,218

28.486 4.263 5 32,754

28.510 283,283 3,554 315,347

31 December 2013

Hnancial asset"> held for trading

Uvell

$Million

uvel2

$Million

uvel3

$.Million

Total

$ J\ilillion

Current asset investments Derivatives 17 74.890 2.741 77,648

Government bonds 20.418 2.464 19 22.901

Eurobonds and other bonds 8.345 9.485

506



14. Financial assets and liabilities accounting classifications and fair values (continued)

Given the short term nature and characteristics of trade debtors. other debtors, trade creditors. other creditors and

accruals the fair value has been assumed to the value. The fair value of subordinated loans

has been calculated the present value of future estimated cash flows. discounted a discount rate of

USD 3 month Overnight Indexed (O!S) or 3 month Euro Index (EONIA) the

Company's credit as at 31 December 2014.

The calculation of fair value incorporates the estimate of the fair value of financial assets and

financial liabilities. Other entities may use different valuation methods and m determining fair

values, so of fair values between entities may not necessarily be meaningful.

The Company measures fair values using the following fair value hierarchy that indicates whether the inputs to

those valuation techniques are observable or unobservable. Observable inputs denote market data obtained from

independent sources, while unobservable inputs reflect the Company's market assumptions.

The types of inputs have created the following fair value hierarchy:

• Level 1: Quoted prices for identical instruments in active markets.

• Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar

instruments in markets that are not active; and model-derived valuations in which all signit1cant inputs

and significant value drivers are observable in active markets.

• Level 3: Valuations derived from valuation techniques in which one or more significant inputs or

significant value drivers are unobservable.

The Company considers relevant and observable market prices in its valuations where possible. The frequency of

transactions and the size of the bid-ask spread when comparing similar transactions are factors that are driven by

the liquidity of markets and the relevance of observed prices in those markets.

The Company's policy with respect to transfers between levels of the fair value hierarchy is to recognise

transfers into and out of each level as of the end of the reporting period.

Determination of Fair Value

As set out in Note l(b), when available, the Company generally uses quoted market prices in an active market to

calculate the fair value of a financial asset and such Level l In some cases where a

market available, of as



14. Financial assets and liabilities accounting classifications and fair values

The to determine the fair value of financial assets and financial

of whether they are "held for or have been at fair value". The

includes an indication of the level in the fair value in which each financial instrument is

details are of the valuation models. the to those

models and any

Derivatives Exchange-traded derivatives in active markets are generally fair valued using quoted market prices (i.e. exchange

prices) and are therefore classified as Level I of the fair value

The of derivatives entered into by the Company are executed over the counter and are valued using a

combination of external prices and internal valuation techniques. including benchmarking to pricing vendor

services. The valuation techniques and inputs vary according to the type of derivative and the nature of the

underlying instrument. The principal methods used to value these instruments are those adopted industry wide

and include discounted cash flows, modelling and numerical approaches.

The type of inputs may include interest rate yield curves, credit spreads, foreign exchange rates. volatilities and

correlations.

Government bonds, Corporate bonds and Equities

When available, the Company uses quoted market prices to determine the fair value of government bonds and

exchange traded equities; such items are typically classified as Level 1 of the fair value hierarchy.

For government bonds, corporate bonds and equities traded over the counter, the Company generally determines

fair value utilising internal valuation techniques. Fair value estimates from internal valuation techniques are

verified. where possible, to prices obtained from independent vendors. Vendors compile prices from various

sources and may apply matrix pricing for similar bonds or loans where no price is observable. If available. the

Company may also use quoted prices for recent trading activity of assets with similar characteristics to the bond

or loan being valued. Government bonds, corporate bonds and equities and loans priced using such methods are

generally classified as Level 2. However, when less liquidity exists for government bonds, corporate bonds or

equities, a quoted price is stale or prices from independent sources vary. they are generally classified as Level 3.

The Company discounts future cashtlows using appropriate interest rate curves. In the case of collateralised

interest rate derivatives and equity derivatives the Company follows the terms in the collateral agreement

governing the transaction. The agreements generally provide that an OIS curve is used. The OIS curves reflect

the interest rate paid on the collateral against the fair value of these derivatives.

CITIGROUP GLOBAL IARKETS LIMITED NOTES TO THE FINANCIAL STATEMENTS

14. Financial assets and liabilities acconnting classifications and fair values

The movement Level 3 items for the year was:

2014

Financial assets held for trading

Current asset investrre:nts

Gain/(loss)

recorded in

At 1 the profit and

January Joss statement

$ Million $ '>lillion

Purchases

$ 'VIillion

Sales Settlements

S '>lillion $ Million

Transfer

froml(to)

Level 1 and At 31

Level 2 December

$ Millioo $ 'Vlillion

Derivatives 1589) 68 (116)

Govemm2nt bonds 19 (J) (222)

Eorobonds and other corporate bonds 1.141 17 L227 (1,698)

Equities 111 (18) 150 (132)

94 421 2.619

('!71

(266) 421

6 117

Collateralised financing transactions 343 13 !53 (58) (!86) 265

Financial liabilities held for trading

Derivatives

Long TennDebt


2013

Financial assets held for trading

Current asset investn£nts

Derivatives

Govemm2nt bonds

Eorobonds and other corporate bonds

Equities


(Gain )floss Transler

recorded in froml(to)

Atl the profit and Levell and At31

January loss statement Purchases Sales Settlements Level2 December

$Million $ 'Vlillion $Million $!VIi Ilion $ !V61Jion $ 'Vlillioo $ '>lillion

3.376 (738) (23) 39 70 825 3549

20 12 36 (51) (12) 5

3.396 (726) (23) 75 19 813 3.554

Gain/(loss) Transfer

recorded in froml(to)

Atl the profit and Levell and At31

January Joss statement Purchases Sales Settlements Level2 Decemher

$Million $Million $Million $ 'Vlillion $ 'Vlillion $ !VIillion $1\lillion

3.447 (771) 13 (11) (551) 614 2.741

77 (23) 113 (]43) (5) 19

679 439 L663 (L480) (!61) 1.140

60 24 42 (37) (6) 29 112

292 (391) 442 343



14. Financial assets and liabilities accounting classifications and fair Yalues (continued)

Financial instruments may mO\e between levels in the fair value when factors such as or the

of parameters As conditions around these factors financial instruments may

up the fair value hierarchy. There were no transfers of investments between Level 1

the years ended 31 December 2014 and 2013.

Valuation process for Level 3 Fair Value Measurements

Price verification and related internal control are governed by the Citi Pricing and Price

Verification Policy and Standards. which are jointly owned by Finance and Risk Management. Finance has

implemented the ICG Securities and Banking Pricing and Price Verification Standards and Procedures to

facilitate compliance with this policy.

Transfers into or out of Level 3 are primarily driven by changes in the availability of independent data for

positions where the Company has risk exposure. yet the market is no longer considered to be active. As liquidity

and transparency improves. the financial instrument may transfer back to a previous classit1cation level.

The key derivative contributors to the Level 3 financial instrument decrease over 2014 focussed on exotic

inventory across the Rates, Commodities and Credit Trading businesses.

Movements across purchases, issuances. sales and settlements were driven by asset backed securities across the

Securitised Markets business and corporate bonds across the European Rates and Credit Trading businesses.

Transfers into Level 3 were driven by Credit Trading across trading securities. and a decrease in observability of

input parameters, such as correlation, over the year. Transfers out of Level 3 were driven by greater

observability around Securitised Markets and Credit Trading. mainly across asset backed securities. as visibility

improved.

During the year, total changes in fair value, representing a gain of $147 million (2013: $94 million loss) were

recognised in the profit and loss account relating to items where fair value was estimated using a valuation

technique that incorporates one or more significant inputs based on unobservable market data. As these

valuation techniques are based upon assumptions. changing the assumptions will change the estimate of fair

value. The potential impact of using reasonably possible alternative assumptions for the valuation techniques for

both observable and unobservable market data has been quantified as approximately $176 million (2013:

$185 million). The main contributors to this impact are Equity Markets. Emerging Markets Credit Trading.

Credit Trading and other cross-asset businesses.

Valuation uncertainty is computed on a quarterly basis. The methodology used to derive the impact across each

is determined by the model in



15. Debtors

The amounts are included in debtors:

Amounts due within one year:

2014 2013

$ l\lillion $ l\lillion

Trade debtors 9,459 7,930

Collateralised financing transactions 93,054 98,874

Cash collateral ll ,482 4.650

Other debtors 281 130

Prepayments and accrued income 16 18

Corporation tax recoverable 12 21

Amounts due in greater than one year:

Deferred tax asset (Note 20) 29 13

114.333 111,636

Included within debtors are the following balances due from group undertakings:

Amounts due V <ithin one year:

2014 2013

$ J\llillion $ J\llillion

Trade debtors 3,118 3.068

Collateralised financing transactions 28,335 24,324

Cash collateral pledged 666 776

Other debtors 45 13

32,164 28.181

16. Pledged assets

Collateral accepted as security for assets

The fair value of financial assets including government bonds. eurobonds and other corporate bonds, equities.

and cash that were to be sold absence of $!50.2 billion

The fair value of had l December 2014

3: !0.4



17. Current asset investments

Current asset investments form part of the asset

securities and other financial assets. The

the and marketable

amounts are included in current asset investments:

2014

$Million

2013

$Million

Govemment bonds 21.902 22.901

Eurobonds and other corporate bonds 11.629 10,881

Equities -listed on a recognised UK exchange 2.201 1.440

lis ted elsewhere 7.943 6.121

Physical Commodities 1,458 530

Certificates of deposit 0 I

Commercial Paper 0 52

Derivatives (Note 18) 203,894 77.648

249,027 119.574

Eurobonds and other corporate bonds include $576 million (2013: $1,397 million) of bonds that are "designated

at fair value" and the remainder are classified as "held for trading".

18. Derivatives

Swap agreements, swap options and

interest rate cap and floor agreements

Index and equity options and similar

contractual commitments

Other options and contractual

commitments

2014 2013

Fair Value Fair Value

Asset Liability Asset Liability

$ J\ilillion $ J\llillion $ J\llillion $ J\ilillion

18!.245 180,538 60.879 62,556

5.661 7.219 8,379 9,863

16.988 15,618 8,390 7,580

203.894 203.375

$


NOTES TO THE FINANCIAL STATElVIENTS

20. Deferred tax asset

The amounts are included within deferred tax: 2014

$ :\fillion

2013

$Million

Short term timing differences

At 1 January

Increase during the year- P&L

FXmovement

At 31 December

13 12

17

(ll

Deferred tax assets are recognised to the extent that it is more likely than not that there will be suitable taxable

profits from which the reversal of the underlying timing differences can be deducted.

Deferred tax is recognised on timing differences arising in the Company's non-UK branch operations. including

differences in relation to share based payments and pensions. The recognition accords with the Company's

accounting policies. because it is more likely than not that there will be suitable taxable profits arising in these

operations from which the future reversal of underlying timing differences can he deducted.

The Company has not recognised a deferred tax asset of $347 million (2013: $379 million) in relation to carried

forward losses and timing differences where the recoverability of potential benefits was not previously

considered likely. This year the Company is profitable and, if this continues, the directors will reconsider

whether recognition is appropriate on the basis that there is sufficient certainty around the future profitability of

the Company to enable the use of the recognised deferred tax asset against future profits of the Company.

21. Creditors

The following amounts are included within creditors.

Included within 'Other creditors and accruals' is the accrual in respect of the bank levy.

Amounts falling due within one year:

Securities sold. but not yet purchased

Derivatives (Note 18)


collateral held

2014 2013

$Million $ 1\!Jillion

32.754 29,429

203.375 79,999

79.218 87,474



21 Creditors

Included vvithin creditors are the balances due to group

Amounts falling due "'ithin one year:


Cash collateral held

Bank loans and overdrafts

Trade creditors

Other creditors and accruals

Amounts falling due in greater than one year:

Trade creditors

22. Derecognition of financial assets and financial liabilities

Transferred financial assets that are not derecognised in their entirety

2014 2013

$Million $Million

13.221 9.124

5.407 2.623

9.960 5.591

573 930

354 423

29,515 18.691

122 160

There are certain instances where the Company continues to recognise financial assets that it has transferred.

The Company enters into collateralised financing transactions where it sells or lends debt or secunt1es

with a concurrent agreement to repurchase them. As significantly all of the risks and rewards of the underlying

securities are retained, a collateralised financing liability is recognised and the securities remain on balance

sheet.

As at 31 December 2014 the Company recognised $44.893 million of assets (2013: $42,931 million), with an

associated $41,916 million of collateralised financing liabilities (2013: $31,789 million).

23. Trading financial assets and liabilities

Any initial gain or loss on financial instruments where valuation is dependent on valuation techniques using

unobservable parameters are deferred over the life of the contract or until the instrument is redeemed, transferred

or sold or the fair value becomes observable.


24. Subordinated loans

The subordinated loans form part of the Cc•mJ)ariy

the PRA and can

held to meet the

The amounts were included within subordinated loans: 2014

$ Jillion

2013

$ .\Jillion

Amounts falling due after tive years 4,080

4,080

The subordinated loans, on which interest is payable at market rates, are due to other group undertakings,

4,200

On 10 September 2014 the Company repaid $1,300 million of subordinated loan borrowings to Citigroup

Financial Products Inc, and simultaneously drew down EUR I ,000 million of subordinated Joan borrowings from

Citigroup Financial Products Inc,

On 27 October 2014 the Company repaid $700 million of subordinated loan borrowings to Citigroup Financial

Products Inc, and simultaneously drew down EUR 550 million of subordinated loan borrowings from Citigroup

Financial Products Inc.

These repayments and borrowings were made in order to enhance the efficient allocation of Citi's resources,

At 31 December 2014, the Company had in place the following subordinated loan facilities:

Facilities with other group undertakings:

Facilities expiring between one and five years

2014

Total

facilities

av.lilable

$Million

2013

Total

facilities

av.lilable

$Million

5,()00

5,000

On 4 February 2015 the Company drew down $800 million of subordinated loan nn1rrnu111"'< from Citigroup

Financial Products Inc,

CITIGROUP GLOBAL .MARKETS LIMITED NOTES TO THE FINANCIAL STATEMENTS

25. Provisions for liabilities

Restructuring

pnnision

Litigation

pro"isions

Other

prmisions

Total

$Million $ Jillion $Million $ Jillion

At I 2014 14 14 28 56

Charge to profits 56 14 36 106

Provisions utilised (40) (l) (2) (43)

At 31 December 2014 30 62 119

The restructuring provision is in respect of the cost of staff redundancies. The full amount is expected to be utilised in 2014. There are no releases anticipated.

No additional information is disclosed in respect of the litigation provision due to its sensitive nature. Other

provisions are held in respect of accounting reconciliation and control procedures as part of the balance sheet

substantiation process.

26. Called up share capital

The Company's share capital comprises: 2014

$Million

2013

$Million

Allotted, called-up and fully [IDd:

I ,499,626,620 ordinary shares of $1 each I ,500 1.500

====1.5=00 1.500

27. Reserves

The Company's reserves comprise: Capital Profit and

reserve

$!\:Jillion

loss account

$ J\!Iillion

Total

$]\;Jillion



28. Financial instruments and risk management

Objectives, policies and strategies

in financial instruments is fundamental to the business. The risks associated with financial

instruments are a component of the overall risk faced the in turbulent

financial markets.

The in financial instruments for four reasons:

• as a result of the sale or

over-the-counter market):

• to satisfy its clients' requirements to

of structured or deriYative to its clients in the

or sell investments:

• as a result of underwriting activities: and

• to economically hedge positions on its hooks created by the business noted above.

The Company also acts as agent for its customers in the purchase, sale and assignment of securities and

derivatives listed on recognised investment exchanges.

The Company's derivative transactions are principally in the equity, interest rate. credit and commodity markets.

Most of the counterparties to the Company's derivative transactions are banks and other financial institutions.

The risks involved in trading derivatives include market. liquidity, credit and operational risk.

Market uncertainty places additional importance on the risk management policies and procedures which are

outlined below. The Company believes that effective risk management is of primary importance to its overall

operations. Accordingly. the Company seeks to maintain a comprehensive risk management process to monitor,

evaluate and manage the principal risks it assumes in conducting its activities. These risks include market.

liquidity. credit and operational risks. Citi's risk management framework. as established by the Chief Risk

Officer. is designed to balance business ownership and accountability for risks with well-defined independent

risk management oversight and responsibility to monitor. evaluate and manage the principal risks it assumes in

conducting its activities. Citi's risk management framework. tailored as appropriate for the Company, is based

on the following principles established by the Chief Risk Officer:

• a defined risk appetite, aligned with business strategy;

• accountability through a common framework to manage risks;

• risk decisions based on transparent. accurate and rigorous analytics:

• a common risk capital model to evaluate risks;

• expertise, stature, authority and independence of Risk Managers: and

• risk managers empowered to make decisions and escalate issues.

CITIGROUP GLOBAL MARKETS LllVIITED


28 Financial instruments and risk management

Objectives, policies and strategies

local risk governance and ensure

while at the same time their

meets not less than

Risk management

of local risk and of the

risk strategy. The CGML Risk Committee

Citi manages risk across three dimensions: businesses, regions and critical products.

groups has a Business Chief Risk Officer who is the focal for risk decisions (such as

approving transactions) in the business.

There are also Regional Chief Risk Officers. accountable for the risks in their geographic area and who are the

primary risk contact for the regional business heads and local regulators. In addition. there are Product Chief

Risk Officers for those areas of critical importance to Citi such as real estate and fundamental credit. The Product

Risk Officers are accountable for the risks within their specialities across businesses and regions. The Product

Risk Officers serve as a resource to the Chief Risk Officer, as well as to the Business and Regional Chief Risk

Officers, to better enable the Business and Regional Chief Risk Oft!cers to focus on the day-to-day management

of risks and respond in a timely manner to business needs. Risk management within the Company is overseen by

the Regional Risk Manager along with the managers for the different risk types within the region. such as market

risk. liquidity risk, credit risk and operational risk.

The Citi risk organisation also includes a Business Management team who seek to ensure that the risk

organisation has the appropriate infrastructure, processes and management reporting. This team, which supports

risk management within the Company, includes the following groups:

• the risk capital group. which continues to enhance the risk capital model and its consistency across all

business activities;

• the risk architecture group. which seeks to ensure integrated systems and common metrics, and thereby

facilitates aggregation and stress testing of exposures across the institution;

• the operational risk management group, which focuses on improving the effectiveness of existing

controls while increasing accountability and eliminating redundancy; and

• the office of Strategic Regulatory Relationships and the Chief Administrative Officer, which focuses on

critical regulatory relationships as well as risk communications.

The Company utilises Citi's risk management model and organisation, with its multi-dimensional risk oversight

and its people. processes and systems to ensure robust oversight of entity risks. In addition, the Company has

risk management and controls, to facilitate to risk and to ensure the

for the

CITIGROUP GLOBAL MARKETS Lll\HTED



Risk management (continued)

Board of Directors about the potential economic impacts to the Company that may occur. directly or indirectly.

as a result of scenarios. based on judgmental from independent risk managers.

The stress testing and risk assessment exercises are a supplement to the standard limit-setting and risk capital

exercises described later in this section. as these processes incorporate events in the marketplace and within the

Company that impact the firm's view of the form. magnitude. correlation and timing of identified risks that may

arise. In addition to enhancing awareness and understanding of potential exposures within the Company. the

results of these processes serve as the starting point for risk management and mitigation

A Citi-wide (including an EMEA-based) Business Practices Committee (BPC) reviews practices involving

potentially significant reputational or franchise issues. These committees review whether Citi's business

practices have been designed and implemented in a way that meets the highest standards of professionalism,

integrity and ethical behaviour.

Additional committees ensure that product risks are identified, evaluated and determined to be appropriate for

Citi and its customers, and safeguard the existence of necessary approvals. controls and accountabilities.

The New Product Approval Committee (NPAC) is designed to ensure that significant risks. including reputation

and franchise risks, for all new ICG products, services or complex transactions, are identified and evaluated.

determined to be appropriate. properly recorded for risk aggregation purposes, effectively controlled, and have

accountabilities in place.

The Investment Products Risk (IPR) Committee oversees two product approval committees that facilitate

analysis and discussion of new retail investment products and services created and/or distributed by Citi. The

Manufacturing Product Approval Committee is responsible for reviewing new or modified products or

transactions created by Citi that are distributed to individual investors as well as third-party retail distributors.

The Distribution Product Approval Committee (DPAC) approves new investment products and services,

including those created by third parties as part of Citi's "open architecture" distribution model. before they are

offered to individual investors via Citi distribution businesses (e.g. private bank. consumer, etc.).

Along with the processes described above. the following sections summarise the processes that were in place

during 2014 for managing the Company's major risks.

As summarised in the Strategic Report, Citi has identified the following as the key risks facing the Company.

Market risk




with the who work most with the customers,

ds up to the s enior executives manage these businesses with a

exten

'""""'1'""'" :J<Yarerr:Htcm up to the country level. In all cases. the businesses are for the

take and for within their defined limits.

Market risk is measured through a complementary set of tools, factor sensitivities. VaR, and stress

Each of these is discussed in greater detail below. Each business has its own market risk limit

framework. these measures and other controls, permitted product lists and a new

product approval process for complex products.

The Company's VaR reports are circulated daily for monitoring of: the VaR usage against the overall VaR

limit; (ii) the standalone VaR by market risk factor; the component Value at Risk (CVaR) contribution to

total VaR; and (iv) the stressed VaR. As well as an overall VaR limit, the Company has factor sensitivity

triggers in place for each market risk factor that are monitored daily. Factor sensitivities are defined as the

in the value of a position for a defined change in a market risk factor (e.g. the change in the value of a Treasury

bill for a one basis point change in interest rates). It is the responsibility of each business to seek to

ensure that factor sensitivities are calculated and reported for all relevant risks taken within a trading portfolio.

Exposure that approaches or exceeds limit or trigger levels is escalated within market risk management and to

the Company's Market Risk Manager and Legal Entity Risk Manager, with necessary actions taken.

Where the Equities business is concerned, an ex-ante stress loss based escalation framework has been put in

place to cover all block trades, including accelerated equity offerings, equity underwritings, rights offerings and

special situation (event-driven) transactions. Transactions with estimated stress losses above certain levels

require escalation to the EMEA Chief Risk Officer, the Company's Chief Executive Officer and to the

Company's board.

VaR methodology

VaR estimates the potential decline in the value of a position or a portfolio, under normal market conditions, over a

specified holding period and confidence level. The VaR methodology developed and applied at Citi at a global

level is also used at subsidiary level, including the Company. The Citi standard is a one-day holding period, at a

99 per cent confidence level. The VaR methodology incorporates the factor sensitivities of the trading portfolio and the volatilities and correlations of those factors. The Company's VaR is based on the volatilities of. and

correlations between, a wide range of market risk factors, including factors that track the specific issuer risk in

debt and VaR statistics can be different firms differences

VaR



28 Financial instruments and risk management (continued)

Jfarket risk

VaR limiwtions of VaR

size of loss when it occurs. Hence a \ aried set of factor

VaR limits.

A VaR limit is in place for the to ensure that any excesses are discussed and resolved between risk

officers and the business and entity management. This limit is complemented by the factor triggers

defined above.

Although it provides a valuable guide to risk. YaR should also he viewed in the context of its limitations:

• the use of historical data as a proxy for estimating future events may not encompass all potential events.

particularly those of an extreme nature:

• the use of a one day holding period assumes that all positions can he liquidated or their risks offset in one

day. This may not fully ret1ect the market risk arising at times of severe illiquidity. when a one day

holding period may he insufficient to fully liquidate or hedge positions:

• the use of a 99'7c confidence level, by definition. does not take into account losses that might occur

beyond this confidence level:

• VaR is calculated on the basis of exposures outstanding at close of business and therefore does not

necessarily reflect intra-day exposures: and

• VaR is unlikely to reflect loss potential on exposures that only arise under significant market movements.

As set out above, stress testing is performed on portfolios on a weekly basis to estimate the impact of extreme

market movements. Stress testing is performed on individual portfolios. as well as on aggregations of portfolios

and businesses. as appropriate. It is the responsibility of independent market risk management. in conjunction with

the businesses, to develop stress scenarios, review the output of periodic stress testing exercises. and use the

information to make judgments concerning the on-going suitability of exposure levels and limits.

The following table summarises market risk by disclosing the Company's average VaR during the reporting

period, together with the VaR as at 31 December. broken down into component Value at Risk (CYaR). CVaR

represents the correlation or diversification adjusted standalone VaR contribution from a particular sub-portfolio to

the total YaR:

Interest

2014

$Million

Foreign

risk Credit Risk

Overall

VaR




Liquidity risk

risk as the risk that the will not be both

The s funding and liquidity aim to maintain liquidity, to fund the asset base and grow

the core business, while at the same time conserving sufficient excess liquidity, structured appropriately, to

continue operating under a wide variety of market conditions, including both short and long-term market

disruptions.

The UK forum for liquidity management is the UK Committee (UK ALCO). which

includes senior executives from within the Company and is chaired by the Chief Country Officer. This forum is

composed of the UK CFO, EY!EA CFO, UK legal entity Risk Manager, UK Treasurer, EMEA Regional

Treasurer. the Financing Desk Heads and key business representatives. The UK ALCO reviews the current and

prospective funding requirements of the Company. as well as its capital position and balance sheet.

A liquidity plan is prepared annually and the liquidity profile is monitored on an on-going basis and reported daily.

Liquidity risk is monitored using various ratios and limits in accordance with the Liquidity Risk Management

Policy for Citi. The funding and liquidity plan includes analysis of the balance sheet as well as of the economic

and business conditions impacting the major operating subsidiaries in the UK. As part of the funding and liquidity

plan. liquidity limits. liquidity ratios and assumptions for periodic stress tests are reviewed and approved.

In order to meet its liquidity stress testing requirements and liquidity ratio hurdles. the Company holds a pool of

liquid assets including highly liquid government bonds.

Stress testing and scenario analyses are intended to quantify the potential impact of a liquidity event on the

Company's balance sheet and liquidity position. and to identify viable funding alternatives that can be utilised.

These scenarios include potential significant changes in key funding sources, market triggers (such as credit rating

downgrades), uses of funding, and political and economic conditions, including standard and stressed market

conditions as well as firm-specific events. Some tests span liquidity events over a full year while others may cover a

more intense shock over a shorter period such as one month. These potential liquidity events can identify

potential mismatches between liquidity sources and uses over a variety of time horizons, and liquidity limits are

set accordingly. To monitor the liquidity of a unit. these stress tests and potential mismatches may be calculated

with varying frequencies, with several important tests performed daily.

Given the range of potential stresses, Citi maintains a series of contingency funding plans on a consolidated basis

as well as for individual entities, including the Company. The plans specify a wide range of readily available

actions under a variety of adverse market conditions or idiosyncratic disruptions.

CITIGROUP GLOBAL MARKETS LIMITED NOTES TO THE FINANCIAL STATEJ\IENTS


Liquidity risk

the assets and liabilities to relevant

from the balance sheet date to the contractual date.

risk. management uses certain based on a combination of contractual and behavioural

which differ from the contractual dates shown below.

Total

31 Decemher 2014 $Million

On

demand

$ JVIillion

3 months

& less

$ '\Iillion

3-12 months

$ lVIiIIion

5 years

$ l\Iillion

'\lore than

5 years

$ l\Iillion

Cash 1.571 Ill 1.460 Current asset investments 45.133 45.133 Derivatives 203,894 203.894 Collateralised financing

transactions 93,054 28.220 61.287 2.820 264 463

Cash collateral pledged 11.482 11.482 Trade debtors 9.459 9,459 Other debtors 281 281 Fixed asset investments 40 40

Total financial assets 364.914 277.358 83.969 2.820 264 503

Total

On

demand

3 months

& less

3- 12 months

1-5 years

More than

5 years

$Million $1Vlillion $ lVIillion $Million $Million $ JVIillion

Bank loans and overdrafts 10,104 1.310 3,922 841 2.675 U56

Collateralised financing 79.218 19.617 51.282 7.252 1.067

transactions

Derivatives 203,375 203,375

Cash collateral held 15,404 15.404

Securities sold but not yet 32,754 32,754

purchased

Trade creditors 6.276 6.154 122

Other creditors and accruals 1.043 l.043

Subordinated loans 4,080 4.080

Total financial liabilities 352.254 224.302 110.559 8.093 3.864 5.436

(26.590) (3,6()())




Liquidity risk

3 months 3 -12 On lVIore than

Total demand & less months 1 5 years 5 years

31 December 2013 $ lVlillion $ l\lillion $Million $1\lillion $Million $Million

Cash 2,805 1,367 1,438

Current asset investrrents 41,926 4[,926


Collateralised 98,874 30.715 64,857 l.l13 1.078 I,Ill

transactions

Cash collateral pledged 4,650 4,650

Trade debtors 7,930 7.930

Other debtors 130 130

Fixed asset investrrents 50 50

Total financial assets 234,013 151,656 79,005 1.113 1,078 1,161

On 3 months 3-12 1\<lore than

Total demand & less months 1-5 years 5 years

$ J\;lillion $ J\;lillion $ J\;lillion $Million $Million $Million

Bank loans and overdrafts 5,881 1,090 6!7 1,087 3,087

Collateralised financing 87,474 23,179 55.111 8,818 366

transactions


Cash collateral held 7,457 7,457

Securities sold but not yet 29,429 29,429

purchased

Trade creditors 5,781 5,621 !60

Other creditors and accruals 1,214 1,214

Subordinated loans 4,200 4,200

Total financial Iiabili ties 221,435 104,268 99,449 9,905 3.613 4,200

Net liquidity gap 12,578 47.388 (8,792) (2.535) (3,039)

Cumnlati\e gap 47,388




Liquidity risk

Contractual On 3 months 3- 12 More than

31 December 2014

\alue

$Million

demand

$Million

& less

$Million

months

$Million

5 years

$ 'VIillion

5 years

$ 'VIillion

Subordinated loans 4,610 14 42 225 4.329

Total financial liabilities 4,6!0 14 42 225 4329

Contractual

\alue

On

demand

3 months

& less

3 -12

months

1-5 years

More than

5 years

31 December 2013 $ 'VIillion $!VIiIlion $ l\lillion $ J\:lillion $ 'VIillion $Million

Subordinated loans

Total financial liabilities

Credit risk

5,401 43 129 686 4,543

43 129 686

Credit risk is the potential for financial loss resulting from the failure of a borrower or counterparty to honour its

financial or contractual obligations. Credit risk arises in many of the Company's business activities. including:

• sales and trading:

• derivatives:

• securities transactions;

• settlement; and

• when Citi acts as an intermediary on behalf of its clients and other third parties.

Credit risk is captured in the Company's defined risk appetite framework, which is supplemented by regular stress

testing and monitoring of exposures, with monthly and quarterly reporting to the senior management and the

Board of Directors respectively.

The credit process is grounded in a series of fundamental policies. including:

• joint business and independent risk management responsibility for managing credit risks:

• a single centre of control for each credit relationship to coordinate credit activities with that client:

• a requirement for a minimum of two authorised-credit-officer signatures on extensions of credit, one of

which must from a officer from credit



28 Financial instrnments and risk management (continued)

Credit risk

form of concentration risk and arises when there is a strong correlation between

of default and the mark-to-market value of the transaction. Citi uses a

leveL and

to monitor and control wrong-way risk.

wrong-way risk transactions outside

includes circulation of a report that

entities to obtain prior

This is monitored at a

identifies CDS based. OTC or securities finance

transactions (SFT) that generate specific wrong-\vay risk. Wrong-way risk is mitigated through the use of

enforceable agreements and

The Company seeks to restrict its exposure to credit losses by entering into master netting arrangements with most

mt. rn.,rt"'' with which it undertakes a significant volume of transactions. Master netting arrangements do not

generally result in an offset of balance sheet assets and liabilities. as transactions are usually settled on a gross

basis. However. the credit risk associated with favourable contracts is reduced by a master netting arrangement to

the extent that if an event of default occurs. all amounts with the counterparty are terminated and settled on a net

basis. Many of these arrangements also provide for the calling and posting of variation margin or collateraL

further reducing the Company's exposures. The internal measurement of exposure on each credit facility takes

into account legally enforceable netting and margining arrangements both in terms of current exposure and in

terms of the simulated calculation of potential future exposure.

Large exposure limit reports are circulated daily that show the Company's exposure to various counterparty

groupings as a proportion of its own funds. Regulations require that the Company does not exceed specified limits

for its non trading book exposures. Within a certain percentage below the maximum permitted level, the

Regulatory Reporting group conducts initial analysis and provides a breakdown of exposures to credit risk

management At or above the maximum permitted level. the credit risk management team takes action and

escalates to the front office in order to reduce exposure to that counterparty and thereby bring exposure back

within permitted levels. Similar reporting is carried out against internal limits for the trading book exposures.

The following table presents the maximum exposure to credit risk. before taking account of any collateral held or

other credit enhancements (where such credit enhancements do not meet offsetting requirements).

31 December 2014

Cash

Maximum

exposure

$Million

1.571

Exposure to credit

Offset risk (net)

$ J\!Iillion $ J\!Iillion

1.571

Current asset investments 249.027 (205.145) 43.882


Cash collateral

Tmde debtors

93.054

l 1.482

9.459

28!

(11,552) 81,502

l1.482

28!

CITIGROUP GLOBAL MARKETS Lll\1ITED



Credit risk

The current asset investments offset amount in the above table relates to exposures where the counterpany has an

derivative exposure with the and a master agreement is in These amounts do

for net for purposes as settlement may not be made on a net basis.

The collateralised financing transactions offset adjustment relates to balances from rcpo and reverse repo

transactions. The offsets relate to balances where there is a legally enforceable right of offset in the event of

counterparty default and consequently a net exposure for credit risk management purposes. However as there is

no intention to settle individual transactions on a net basis under normal circumstances. they do not qualify for net

presentation for accounting purposes. Credit risk exposure is monitored on an asset basis except for positions

which arc specifically collatcralised. normally in the form of cash.

As at 31 December the Company's third party credit exposure (mark to market plus potential future exposure as

determined by the Company's internal measure) in relation to collateralised financing transactions and derivatives

was distributed as follows (these exposures do not include derivative and collateraliscd financing transactions with

other group undertakings):

Industry 2014 2013

% %

Commercial and universal banks

37.4

45.6

Insurance and fund management 29.4 16.2

Brokers and investment banks 5.9 5.0

Other (including Corporates. SPVs and Hedge Funds) 27.3 33.2

100 100

The credit quality of the Company's financial assets is maintained by adherence to Citi policies on the provision of

credit to counterparties. The Company monitors the credit ratings of its counterparties with the table below

presenting an analysis of the Company's current asset investments and derivative transactions by rating agency

designation based on Standard & Poor, Moody's and Fitch ratings as at 31 December:

Government bond

2014 2013

Eurobonds and

corporate bonds

2014 2013

Derivatives

2014 2013

% % % % % %

CITIGROUP GLOBAL IVIARKETS LIMITED



Country Risk

Country risk is the risk that an event in country

will impair the value of Citi's franchise or will

honour their to Citi. Country risk events may include

currency crises and/or political events.

\Vi thin or external to that

of to

defaults or crises.

The information below is based on Citi's internal risk management measures. The country designation in Citi's

risk management systems is based on the country to which the client relationship. taken 3S a whole. is most

directly exposed with regard to economic. financial. socio-political or legal risks. This includes exposure to

subsidiaries within the client relationship that are domiciled outside of the country.

Citi assesses the risk of loss associated with certain of the country exposures on a regular basis. These analyses

take into consideration alternative scenarios that may unfold. as well as specific characteristics of the Company's

portfolio. such as transaction structure and collateraL The Company currently believes that the risk of loss

associated with the exposures set forth below is likely to be materially lower than the exposure amounts disclosed

below and is sized appropriately relative to its operations in these countries.

The sovereign entities of all the countries disclosed below, as well as the financial institutions and corporations

domiciled in these countries. are important clients both to the Company and to the global Citi franchise. Citi fully

expects to maintain its presence in these markets to service all of its global customers. Hence the Company's

exposure in these countries may vary over time, based upon its franchise, client needs and transaction structures.

The economic and fiscal situations of several European countries remain fragile, and geopolitical tensions

throughout the region, including in Russia, have added to the uncertainties. Fisc:JI and monetary actions, or

expected actions. throughout the region have further impacted the global financial markets. While concerns

relating to sovereign defaults or a partial or complete break-up of the European Monetary Union (EMU), including

potential accompanying redenomination risks and uncertainties, seemed to have abated during 2014, such

concerns have resurfaced with the election of a new government in Greece in January 2015. The table below

outlines the Group's exposures to these countries as of 31 December:

2014

$Millions Greece Ireland Italy Portugal S!Xlin Russia Total

Net current funded credit exposure

125

282

8

14

44

473

Net trading exposure 45 162 1.308 356 1.502 (2) 3,371

Net current funded exposure 45 287 1,590 364 1.516 42 3,844

Net current funded credit el!.']JOS ure:

86




Country Risk

The exposures detailed above represent nominal levels of exposure without account of the benefit of any

collateraL but the benefits of and credit The net exposures are marked to

market daily. and levels of exposure vary as the are maintained consistent with customer needs. As

discussed above. the net exposure is lower than shown in this table.

Operational risk (unaudited)

Operational risk is the risk of loss resulting from inadequate or failed internal processes. systems or human factors.

or from external events. It includes the reputation and franchise risk associated with business practices or market

conduct in which Citi is involved. Operational risk is inherent in the Company's global business activities. as well

as its internal processes that support those business activities. and can result in losses from events related to

the following. among others:

• fraud. theft and unauthorised activities;

• employment practices and workplace environment:

• clients. products and business practices;

• physical assets and infrastructure: and

• execution, delivery and process management.

Where applicable. losses stemming from fines and regulatory penalties are included in the relevant categories

above. which are consistent with the Basel framework.

Framework

Citi's global operational risk is managed through an overall framework designed to balance strong corporate

oversight with well-defined independent risk management. This framework includes:

• recognised ownership of the risk by the businesses:

• oversight by Citi's independent risk management and control functions; and

• independent assessment by Citi's Internal Audit function.

The goal is to keep operational risk at appropriate levels relative to the characteristics of the Company's

businesses, the markets in which it operates. its capital and liquidity, and the competitive. economic and regulatory

environment.

To anticipate.

consistent framework for monitoring, as;,e smtg

the internal control across Citi.




Operational risk

Framework (continued)

In addition.

businesses.

controls and

Risk Management, within Citi's Franchise Risk and

and and the other independent control groups in

risks across business lines and

risk at a Citi and

assists the

and facilitates the

Operational risk is pan of the Company's defined risk appetite framework supplemented with regular reporting

and updates to the senior management and the Board of Directors.

Measurement

To support advanced capital modelling and management. each business is required to capture relevant operational

risk event information. An enhanced version of the Citi risk capital model for operational risk has been developed

and applied across the major business segments. The PRA has approved this modeL inc!uding the associated

capital allocation, for use within the Company as an "Advanced Measurement Approach". It uses a combination

of internal and external loss data to support statistical modelling of capital requirement estimates, which are then

adjusted to incorporate qualitative aspects of the operational risk and control environment.

To enhance its operational risk management the Company has implemented a forward looking scenario analysis to

identify and quantify emerging operational risks, through a systematic process of obtaining opinions from business

managers and risk management experts to devise reasoned assessments of the likelihood and loss impact of

plausible, high severity operational risk losses. This development has been integrated into the operational risk

capital assessment for the Company.

Anti Money Laundering and Sanctions

Local and international Anti-Money Laundering (AML) and Sanctions requirements impact the activities carried

out by the Company and its clients. The development of Sectoral Sanctions to address the political situation in

Ukraine may restrict the Company's ability to act for certain clients with respect to advisory services connected to

longer term lending and capital raising activities by those clients. To facilitate Citi's overall compliance with

these requirements, including recent and upcoming changes, Citi has developed an enhanced control infrastructure

around activities that may be affected by applicable Sanctions regimes. Regulatory requirements concerning AML

controls may continue to cause elevated costs to the Company, particularly those associated with customer due

diligence and suspicious activity monitoring, as Citi continues to implement enhancements in these programme

areas.

Conduct Risk




Operational risk

Cliellf Assets Sourcebook (CASS)

The FCA's Client Assets Sourcebook (CASS)

or client assets (client money and safe assets). Due to recent market

insolvencies the FCA has published to its CASS rules. which all firms

and be fully compliant with I June 20 I 5.

The CK rules are designed to help ensure that clients' assets are protected and returned to clients within a

reasonable timeframe in the event of a firm·s failure and that the UK market is regarded as a safe place to conduct

business. The rules also prescribe requirements for arrangements. controls and governance. In line

with this. Citi has a CASS Oversight Oftleer and continues to develop CASS governance arrangements and is

working towards the implementation of the new CASS rules coming into force on I June 2015. which may result

in elevated costs to the Company.

Outsourcing Risk

Third parties with which Citi does business may also be sources of cybersecurity or other technological risks. Citi

outsources certain functions. such as uploading content on customer-facing websites, and developing software for

new products and services. These relationships allow for the storage and processing of customer information by

third-party hosting of or access to Citi websites, which could result in service disruptions or website defacements.

and the potential to introduce vulnerable code. resulting in security breaches impacting Citi customers. While Citi

engages in certain actions to reduce the exposure resulting from outsourcing, such as performing onsite security

control assessments, limiting third-party access to the least privileged level necessary to perform job functions and

restricting third-party processing to systems stored within Citi's data centres. ongoing threats may result in

unauthorized access, loss or destruction of data or other cyber incidents with increased costs and consequences to

Citi such as those discussed above.

Furthermore, because financial institutions are becoming increasingly interconnected with central agents.

exchanges and clearing houses. partly because of the derivatives reforms over the last few years. Citi has increased

exposure to operational failure or cyber attacks through third parties.

Regulatory risk and developments

Regulatory risk is the risk of failing to comply with regulatory requirements. regulatory change or regulators·

expectations. Failing to manage regulatory risk properly may result in regulatory sanctions and increased

reputational and franchise risk.

the regulatory environment continues to evolve. Citi and the

and

CITIGROUP GLOBAL l\1ARKETS LllVIITED NOTES TO THE FINANCIAL STATEMENTS


arc also

management processes.

such more reliance on

There is an increased focus from local on that subsidiaries and branches of international

financial seniees companies are adequately capitalised and managed such that in the event of a local

market disruption they would be able to sustain their business and cover any losses incurred without an

exaggerated reliance on offshore parental financial aid.

As of l

investment firms. as prescribed by the BRRD.

crises across the EU.

a single rulebook for the resolution of banks and

to harmonise and improve the tools for with bank

Additionally, the Company has been identified as a Material Legal Entity in Citi's Resolution Plan. Citi defines

Material Legal Entities as those legal entities, including subsidiaries and foreign offices, with business lines,

including associated operations, services. functions and support that upon failure would result in a material loss of

revenue, protlt or franchise value ofCiti. Citi's Resolution Plan can be found at·

Dodd Frank Act

The Dodd-Frank Wall Street Reform and Consumer Protection Act and the Wall Street Transparency and

Accountability Act (together commonly referred to as the Dodd-Frank Act) introduced an array of new regulations

in respect of over-the-counter derivatives (swaps). and the activities of major institutions transacting in these

products. These included registration and regulatory requirements for swap dealers, an enhanced risk management

framework, segregation of initial margin for uncleared swaps. business conduct rules applicable when transacting

swaps with certain types of counterpartics, and rules on mandatory clearing and trade execution of certain swaps.

Financial intermediaries that transact above certain thresholds with U.S. counterparties (or counterparties with US

originated guarantees) were required to register with the Commodity Futures Trading Commission (CFTC). The

directors and senior management of the Company accordingly elected to register the Company as a Swap Dealer,

and the Company was provisionally registered by the CFTC as a non-US Swap Dealer in October 2013. A

consequence of registering as a Swap Dealer is increased regulatory oversight by the CFTC and enhanced

compliance obligations. 2014 represented the first full year of the Company operating as a CFTC-registered non

US Swap Dealer for purposes of the Dodd-Frank Act.

In December 2013 the CFTC granted limited relief from certain requirements under the Dodd-Frank Act for EU

based Swap Dealers. to the extent that Swap Dealers comply with comparable regulatory obligations under

law. The has elected to take of certain elements of this relief. Whilst this CFTC




Regulatory risk and developments (continued)

derivatives and the

management framework. Final rules for client of OTC

for derivatives not cleared will continue to be

with EU and non-EU affiliates. The

readiness once the final

,4/arkets in Financial Instruments Directive (J'vfiFID} and on Jl;farkers in Financial Instruments (lv!iFIR)

The new rules relating to MiFID Il/MiFIR will start to to firms early in 2017. The MiFID ll/MiFIR reforms

will have a significant impact on a number of areas including market structure, transparency requirements,

transaction commodities. the third eountry investment research and

supervision.

Some key aspects of MiFID li/MiFIR include the introduction of a new multilateral, discretionary trading venue

for non-equity instruments, the Organised Trading Facility (OTF), and an extension of the Systematic lnternaliser

(Sl) regime to non-equity instruments. There will also be a requirement for investment firms to trade listed

equities on a Regulated Market, Multilateral Trading Facility, OTF or SL There are new systems and controls

requirements for organised trading venues, trading controls for algorithmic trading activities, an obligation to trade

clearable derivatives on organised trading platforms and the introduction of a harmonised EU regime for access to

trading venues, CCPs and benchmarks. MiFID Il/MiFIR will also cover structured deposits and commodities.

The scope of transaction reporting obligations will be widened. There will additionally be an increase in the

transparency requirements for the equities market and new transparency requirements for fixed income

instruments and derivatives, with additional requirements including the submission of post-trade data to

Authorised Reporting Mechanisms. There are increased conduct of business requirements aimed at increasing

investor protection, including rules relating to inducements and the provision of investment research.

Strengthened supervisory powers and administrative sanctions will also apply.

Capital management

The Company's regulatory capital is held to ensure that sufficient loss-absorbing capital is available to meet

unexpected losses and to meet minimum capital standards as set by the PRA. The composition and amount of

capital takes full account of the regulations in force, including the recently implemented CRD IV package.

Capital forecasts are prepared taking into account strategic growth plans, as set out in the Company's Internal

Capital Adequacy Assessment Process (ICAAP) document Capital forecasts are updated and reviewed monthly

through the UK ALCO and the Company's Basel Governance Oversight Committee.



Regulatory capital

deductions from Common

balances and. above certain thresholds. These include certain deferred tax

Tier 3

from 1 which included short-term subordinated liabilities, ceased to as

2014 under the CRR. At 31 December 2013 Tier 3 the unaudited loss for the

year. The increase in

financial sector entities.

deductions in 2014 was in other

The is to maintain a sufficient capital base in order to retain investor. counterparty. creditor and

market confidence and to sustain the future development of the business. The impact of the level of capital on

shareholders' returns is also the need to maintain a balance between the returns that

might be possible with greater gearing and the advantages and security afforded by a sound capital position.

The Company's regulatory capital resources at 31 December were as follows:

2014

2013

$1VIillion $1VIillion

Tier 1 capital 12.754 12,794

Tier 2 capital 4,080 4,086

Tier 3 capital (234)

Deductions (871) (265)

Total regulatory capital resources 15.963

Under CRD IV's framework of capital adequacy regulation, Pillar III mandates enhanced public disclosures in

respect of capital, risk profile and remuneration. Further details on the Company's Pillar III regulatory capital

disclosures can be found at: '-=' '-'-'-:_:_:c -'-'-'="-'-'-'==-'-"-'"-""'-'--'-'--'-'==2-'--"""'"=

29. Other commitments

a) Letters of credit

As at 31 December 2014. the Company had $14 million (2013: $17 million) of unsecured letters of credit

outstanding from banks to satisfy collateral requirements under securities borrowing agreements and margin

requirements.

b) commitments



Latin North Total Other/

America America Regional Corp

31. Group structure

is CGMEL a company

r, ,,n'"""' and ultimate party is in the State of

Delaware. Cnited States of America.

The audited consolidated financial statements of CGMEL are made available to the

with """'""'"'< House and may be obtained from its Wharf, London El4 5LB.

in accordance

Centre. Canada

The audited consolidated financial statements of Citigroup Inc are made available to the

accordance with Securities and Exchange Commission and may be

32. Segmental analysis

in

obtained from

As outlined in the Strategic Report, the Company is Citi's international broker dealer and management reviews its

performance by geography in the same way as Citigroup Inc. report its performance.

It is organised into four regions. Asia Pacitlc, EMEA, Latin America and North America.

Asia EMEA Latin North Total Other/

Total America America Regional Corp

Revenue by Region $Million $Million $Million $Million $Million $Million $Million

2014 Revenues 192 1,439 15 63 1.709 1,352 3.06!

2013 Revenues 258 1,71 I (4) 95 2.060 743 2.803

Increase (decrease)

(66) (272) 19 (32) (351) 609 258 compared to prior year

Asia EMEA Total

Assets by Region $ Billion $Billion $Billion $Billion $Billion $Billion $Billion

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