Retail FX broker KVB Kunlun revises agreement with Banclogix, new services in store

Hong Kong-focused retail Forex broker KVB Kunlun Financial Group Ltd (HKG:6877) has decided to enter into a Second Supplemental Agreement with IT company Banclogix as new services are in store for traders.

In light of the development of the business of KVB Kunlun during the recent months, including but not limited to its intention to provide more competitive services to its clients via mobile trading application development, as well as to implement better internal financial and budget control by SAP system upgrade, the Board considers that the Existing Aggregate Annual Caps should be revised.

The first deal with Banclogix was signed in December 2015, when KVB Kunlun entered into the Software Licence Agreement with Banclogix, pursuant to which Banclogix granted the company a three-year licence to use the leveraged foreign exchange trading software. In August 2016, KVBand Banclogix entered into the First Supplemental Agreement, pursuant to which Banclogix agreed to provide additional software development and maintenance services, information technology infrastructure project management services and information technology infrastructure maintenance services to the Group in order to facilitate (i) the transactions under the membership agreement with the Tianjin Precious Metals Exchange Limited; and (ii) the intended enhancement of the Company’s digital marketing strategies.

As a result of these additional services under the First Supplemental Agreement, the annual caps in respect of the transactions contemplated under the Information Technology Services Agreement for the years ending 31 December 2016, 31 December 2017 and 31 December 2018 were increased to HK$28,500,000, HK$26,000,000 and HK$24,500,000 respectively.

KVB now proposes another revision. The proposed Aggregate Annual Cap for the year to December 31, 208 is HK$37,500,000.

The caps were determined by reference to:

• the estimated demand of the Group for each of the software development and maintenance services, information technology infrastructure project management and maintenance services to be received and their relevant prices;
• the projected increase in the demand of information technology infrastructure project management and maintenance services of the Group;
• the increasing need of the Group to continuously develop and improve the software application to support the Group’s core businesses; and
• the projected increase in the demand of information technology infrastructure project management and maintenance services of the Group with respect to (i) the intended enhancement of the Company’s financial system; and (ii) the intended enhancement of the Company’s client services by provision of mobile trading application.

The broker notes that a mobile trading application to be developed will enable its clients to place trade orders, access market information and manage their trading accounts. The SAP system upgrade is set to improve KVB Kunlun’s internal financial and budget control.

The directors of the broker consider that the Information Technology Services Agreement as supplemented by the Second Supplemental Agreement and the terms thereof and the Revised Aggregate Annual Caps for the three years ending December 31, 2018 are fair and reasonable, and are in the interests of the Company and the Shareholders as a whole.

An EGM will be held for the Independent Shareholders to consider, and if thought fit approve, among other things, (i) the entering into of the Second Supplemental Agreement; and (ii) the Revised Aggregate Annual Caps.

The announcement is made less than a week after KVB Kunlun forecast a year-on-year drop in profits for the year to December 31, 2017. The decrease is mainly attributable to higher referral fees and other charges caused by the increased commission rebate to external parties, as well as the decline in cash dealing income which reflects lower trading volume in cash dealing business and revaluation loss on open positions as at December 31, 2017. An increase in administrative expenses mainly due to higher marketing expenses, customer handling fee expenses and computer services expenses also contributes to the expected drop in net profits.