INTL FCStone 2005 Annual Report Download - page 18

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The Company is responsible for self-clearing its foreign exchange and some of its commodities activities
and in addition takes principal risk to counterparties in these activities. All of the Company’s receipts or
deliveries of metals or other commodities and the settlement of exchange traded options are effected through
clearing institutions. Any metals or other physical commodities positions are held by third party custodians.
The Company’s policy is to monitor the credit standing of the counterparties with which it conducts
business. Nevertheless, one or more of these counterparties may default on their obligations. If any do, the
Company’s business, financial condition and operating results could be materially adversely affected.
In our equity, debt and commodities trading businesses we rely on the ability of our clearing broker to
adequately discharge its obligations on a timely basis. We also depend on the solvency of our clearing broker and
custodians. Any failure by the clearing broker to adequately discharge its obligations on a timely basis, or
insolvency of the clearing broker or custodian, or any event adversely affecting our clearing broker or custodians,
could have a material adverse effect on our business, financial condition and operating results.
Loss of key personnel
From time to time, other companies in the financial services industry have experienced losses of sales and
trading professionals. The level of competition to attract these professionals is intense. As a result, the Company
may lose professionals due to increased competition or other factors in the future. The loss of a sales and trading
professional, particularly a senior professional with broad industry expertise, could have a material adverse affect
on the Company’s business, financial condition and operating results.
Increased competition
The Company derives substantially all of its revenues from market-making and trading activities. The
market for these services, particularly market-making services through electronic communications networks, is
rapidly evolving and intensely competitive. The Company expects competition to continue and intensify in the
future. The Company competes primarily with wholesale, national and regional broker-dealers as well as
electronic communications networks. The Company competes primarily on the basis of its expertise and quality
of service.
A number of the Company’s competitors have significantly greater financial, technical, marketing and other
resources than the Company has. Some of them may:
• offer alternative forms of financial intermediation as a result of technological changes and greater
availability of information
• offer a wider range of services and products than the Company offers
• have greater name recognition
• have more extensive customer bases
These competitors may be able to respond more quickly to new or evolving opportunities and customer
requirements. They may also be able to undertake more extensive promotional activities and offer more attractive
terms to customers. Recent advances in computing and communications technology are substantially changing
the means by which market-making services are delivered, including more direct access on-line to a wide variety
of services and information. This has created demand for more sophisticated levels of customer service.
Providing these services may entail considerable cost without an offsetting increase in revenues. In addition,
current and potential competitors have established or may establish cooperative relationships or may consolidate
to enhance their services and products. New competitors or alliances among competitors may emerge and they
may acquire significant market share.
As a result of the foregoing, the Company’s ability to compete effectively with current or future competitors
is subject to significant uncertainty.
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