INTL FCStone 2005 Annual Report Download - page 16

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Net Capital Requirements
The Company’s broker-dealer subsidiary, INTL Trading, is subject to the net capital requirements imposed
by SEC Rule 15c3-1 under the Securities Exchange Act of 1934. These requirements are intended to ensure the
financial integrity and liquidity of broker-dealers. They establish both minimum levels of capital and liquid
assets. The net capital requirements prohibit the payments of dividends, redemption of stock, the prepayment of
subordinated indebtedness and the making of any unsecured advances or loans to any stockholder, employee or
affiliate, if such payment would reduce the broker-dealer’s net capital below required levels.
The net capital requirements restrict the ability of INTL Trading to make distributions to the Company.
They also restrict the ability of INTL Trading to expand its business beyond a certain point without the
introduction of additional capital.
During the 2005 fiscal year, INTL Trading maintained net capital which exceeded the minimum levels
required by SEC Rule 15c3-1.
Risks Affecting the Company
The Company faces a variety of risks that could adversely impact its financial condition and results of
operations.
The risks faced by the Company include the following:
Fluctuations in revenues due to changes in economic, political and market conditions
The securities business generally is, by its nature, volatile. It is directly affected by numerous national and
international factors that are beyond the Company’s control, including:
• economic, political and market conditions
• the availability of short-term and long-term funding and capital
• the level and volatility of interest rates
• legislative and regulatory changes
• currency values and inflation
Any one or more of these factors may contribute to reduced levels of activity in the securities markets
generally, which could result in lower revenues from the Company’s market-making and trading activities. Any
reduction in revenues or any loss resulting from these factors could have a material adverse effect on the
Company’s business, financial condition and operating results.
Specifically, the Company’s revenues may decrease due to a decline in market volume, prices or liquidity.
Declines in the volume of securities and commodities transactions and in market liquidity generally result in
lower revenues from market-making activities. Lower price levels of securities and commodities also may result
in reduced trading activity and reduce the Company’s revenues from market-making transactions. Lower price
levels also can result in losses from declines in the market value of securities and commodities held in inventory.
Sudden sharp declines in market values of securities and commodities can result in:
• illiquid markets
• declines in the market values of securities and commodities held in inventory
• the failure of buyers and sellers of securities and commodities to fulfill their settlement obligations
• increases in claims and litigation
Any decline in market volume, price or liquidity could have a material adverse effect on the Company’s
business, financial condition and operating results.
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