INTL FCStone 2011 Annual Report Download - page 31

INTL FCSTONE INC.Form10K 17
PARTI
ITEM 1A Risk Factors
 e occurrence of degradation or failure of the communications
and computer systems on which we rely may lead to fi nancial losses,
litigation or arbitration claims fi led by or on behalf of our customers
and regulatory investigations and sanctions, including by the
CFTC, which require that our trade execution and communications
systems be able to handle anticipated present and future peak
trading volumes. Any such degradation or failure could also have
a negative eff ect on our reputation, which in turn could cause us
to lose existing customers to our competitors or make it more
diffi cult for us to attract new customers in the future. Further,
any fi nancial loss that we suff er as a result of such degradations
or failures could be magnifi ed by price movements of contracts
involved in transactions impacted by the degradation or failure,
and we may be unable to take corrective action to mitigate any
losses we suff er.
We are subject to extensive government regulation
 e securities and commodities futures industries are subject
to extensive regulation under federal, state and foreign laws. In
addition, the SEC, the CFTC, FINRA, the NFA, the CME and
other self-regulatory organizations, commonly referred to as SROs,
state securities commissions, and foreign securities regulators require
strict compliance with their respective rules and regulations.  ese
regulatory bodies are responsible for safeguarding the integrity of
the fi nancial markets and protecting the interests of participants
in those markets.
As participants in various fi nancial markets, we may be subject to
regulation concerning certain aspects of our business, including:
•trade practices;
•the way we deal with and solicit clients;
•fi nancial and reporting practices;
•client identifi cation and anti-money laundering requirements;
•capital structure;
•record retention; and
•the conduct of our directors, offi cers and employees.
Failure to comply with any of these laws, rules or regulations could
result in adverse consequences. We and certain of our offi cers and
employees have, in the past, been subject to claims arising from
acts in contravention of these laws, rules and regulations.  ese
claims have resulted in the payment of fi nes and settlements. It
is possible that we and our offi cers and other employees will, in
the future, be subject to similar claims. An adverse ruling against
us or our offi cers and other employees could result in our or our
offi cers and other employees being required to pay a substantial
fi ne or settlement and could result in suspension or expulsion.
 is could have a material adverse eff ect on our business, fi nancial
condition and operating results.
 e regulatory environment in which we operate is subject to
change, particularly in light of the October31,2011 bankruptcy
fi ling of MF Global and its notifi cation to the CFTC of potential
defi ciencies in customer segregated futures accounts. New or
revised legislation or regulations, including the Dodd-Frank Act
and any potential increased regulation over customer segregated
deposits, imposed by the SEC, the CFTC, other UnitedStates
or foreign governmental regulatory authorities, SROs or FINRA
could have a material adverse eff ect on our business, fi nancial
condition and operating results. Changes in the interpretation
or enforcement of existing laws and rules by these governmental
authorities, SROs and FINRA could also have a material adverse
eff ect on our business, fi nancial condition and operating results.
Failure to comply with current or future legislation or regulations
that apply to our operations could subject us to fi nes, penalties,
or material restrictions on our business in the future.
Additional regulation, changes in existing laws and rules, or changes
in interpretations or enforcement of existing laws and rules often
directly aff ect securities fi rms. We cannot predict what eff ect any
such changes might have. Our business, fi nancial condition and
operating results may be materially aff ected by both regulations that
are directly applicable to us and regulations of general application.
Our level of trading and market-making activities can be aff ected
not only by such legislation or regulations of general applicability,
but also by industry-specifi c legislation or regulations.
Due to the passage of the Dodd-Frank Wall Street
Reform and Consumer Protection Act, we will
incur signifi cant additional operational and
compliance costs, our revenues may be lower than
in the past and our fi nancial condition and results
of operations may be adversely aff ected
 e Dodd-Frank Act creates a comprehensive new regulatory
regime governing the OTC and listed derivatives markets and
their participants by requiring, among other things: centralized
clearing of standardized derivatives (with certain stated exceptions);
the trading of clearable derivatives on swap execution facilities
or exchanges; and registration and comprehensive regulation of
new categories of market participants as “swap dealers” and swap
“introducing brokers.”  e Dodd-Frank Act grants regulatory
authorities such as the CFTC and the SEC broad rule-making
authority to implement various provisions of the Dodd-Frank Act,
including comprehensive regulation of the OTC derivatives market.
It is unclear how these regulators will exercise these revised and
expanded powers and whether they will undertake rule-making,
supervisory or enforcement actions that would adversely aff ect us.
 ere will be signifi cant costs to prepare for and comply with
these on-going regulatory requirements. We will incur increased
costs, including legal fees, personnel expenses and other costs
associated with compliance with the Dodd-Frank Act.  ere will
also be signifi cant costs related to the development, operation
and enhancement of our technology relating to trade execution,
trade reporting, surveillance, record keeping and data reporting
obligations, compliance and back-up and disaster recovery plans
designed to meet the requirements of the regulators.