INTL FCStone 2005 Annual Report Download - page 14

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operating in these developing countries. In addition, the Company executes trades based on the foreign currency
flows inherent in the Company’s other international securities activities.
The Company primarily acts as a principal in buying and selling foreign currencies on a spot basis. The
Company derives revenue from the difference between the purchase and sale prices.
The Company periodically holds foreign currency positions for longer periods to create liquidity for
customers or to generate proprietary earnings.
Commodities Trading
The Company established its precious metals trading business in July 2003. Initially, the Company’s
activities were limited to gold and silver. During fiscal 2005, the Company expanded into platinum group metals,
giving the business access to a new set of customers. The Company currently has relationships with a number of
small and medium-sized precious metals producers, refiners, recyclers and consumers, and provides them with a
full range of precious metals trading and hedging capabilities. At the end of fiscal 2005, the Company recruited
an experienced base metals trading team, which commenced trading for the Company in October 2005. This
team will initially focus on physical lead trading and thereafter seek other base metals opportunities. During
fiscal 2005, the Company achieved its previously stated objective of expanding its commodities relationships to
include consumers and recyclers.
When acting as a principal, the Company commits its own capital to buy and sell precious and base metals
on a spot and forward basis. The Company derives revenue from the difference between the purchase and sale
prices.
The Company assists its customers in protecting the value of their future production by selling them put
options on an OTC basis. The Company also provides customers with sophisticated option products, including
combinations of buying and selling puts and calls. The Company mitigates its risk by effecting offsetting OTC
options with market counterparties or through the purchase or sale of commodities futures traded through the
COMEX division of the New York Mercantile Exchange.
The Company also takes periodic proprietary positions by buying commodities or related options. The
Company derives revenue from these proprietary activities through the difference between the purchase and sale
prices or between premiums received and paid.
Asset Management
The Company established its asset management business in May 2004. This business is operated through
INTL Consilium, an asset management joint venture organized by the Company and an unaffiliated third party.
The Company received a 50.1% interest in exchange for a $500,000 capital contribution. INTL Consilium is
registered as an investment adviser with the U.S. Securities and Exchange Commission (“SEC”). In July 2004,
INTL Consilium launched the Emerging Market Absolute Return Fund, which had over $55 million in assets
under management on September 30, 2004 and over $117 million on September 30, 2005. The Company’s
strategy is to build the asset management business by applying an absolute return philosophy to niche markets in
which the Company has significant expertise and experience. INTL Consilium is seeking to add additional
products based on this strategy.
Competition
The international financial markets are highly competitive and rapidly evolving. In addition, these markets
are dominated by firms with significant capital and personnel resources that are not currently available to the
Company. The Company expects these competitive conditions to continue in the future. The Company’s strategy
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