INTL FCStone 2011 Annual Report Download - page 33

INTL FCSTONE INC.Form10K 19
PARTI
ITEM 1A Risk Factors
customer segregated assets, which are generally invested in short-
term treasury securities and money market funds. Our  nancial
performance generally bene ts from rising interest rates. Higher
interest rates increase the amount of interest income earned from
these customer deposits. If short-term interest rates remain low or
continue to fall, our revenues derived from interest will decline
which would negatively impact our pro tability.
Short-term interest rates are highly sensitive to factors that are
beyond our control, including general economic conditions and
the policies of various governmental and regulatory authorities.
In particular, decreases in the federal funds rate by the Board of
Governors of the Federal Reserve System usually lead to decreasing
interest rates in the U.S., which generally lead to a decrease in
short-term interest rates.
We may issue additional equity securities
 e issuance of additional common stock or securities convertible
into our common stock could result in dilution of the ownership
interest in us held by existing stockholders. We are authorized
to issue, without stockholder approval, a signifi cant number of
additional shares of our common stock and securities convertible
into either common stock or preferred stock.
We are subject to risks relating to litigation and
potential securities laws liability
We face signifi cant legal risks in our businesses, including risks
related to currently pending litigation involving both the Company
and FCStone. Many aspects of our business involve substantial
risks of liability, including liability under federal and state securities
and commodities laws, other federal, state and foreign laws and
court decisions, as well as rules and regulations promulgated by the
SEC, the CFTC, FINRA and other regulatory bodies. Substantial
legal liability or signifi cant regulatory action against us and our
subsidiaries could have material adverse fi nancial eff ects or cause
signifi cant reputational harm to us, which in turn could seriously
harm our business prospects. In addition, we face increased litigation
risk as a result of the FCStone acquisition. Any such litigation
could lead to more volatility of our stock price.
For a further discussion of litigation risks, see Item3—Legal
Proceedings below and Note14- Commitments and Contingencies
in the Consolidated Financial Statements.
We may be subject to potentially large claims for
violations of environmental laws
Our base metals trading business may be subject to potential
claims under certain federal, state and foreign environmental
laws.  is business involves the purchase and sale of base metals
such as lead and other potentially hazardous materials. As part
of this business, we engage third parties located both in the
UnitedStates and in other countries to acquire, store, transport
and recycle used automotive and industrial batteries on our behalf.
In the event that these third parties fail to comply with federal,
state or foreign environmental laws in handling or disposing of
these batteries and other hazardous substances used in or arising
from the recycling of these batteries, we may be exposed to claims
for the cost of remediating sites impacted by such improper
handling and disposal, as well as other related costs. We seek to
mitigate this risk by dealing with third parties who we believe
are in compliance with applicable laws and who have established
reputations in the industry.
We are subject to intense competition
We derive a signifi cant portion of our revenues from market-making
and trading activities involving securities and commodities.  e
market for these services, particularly market-making services
through electronic communications gateways, is rapidly evolving
and intensely competitive. We expect competition to continue
and intensify in the future. We compete primarily with wholesale,
national, and regional broker-dealers and FCMs, as well as electronic
communications networks. We compete primarily on the basis of
our expertise and quality of service.
We also derive a significant portion of our revenues from
commodities risk management services.  e commodity risk
management industry is very competitive and we expect competition
to continue to intensify in the future. Our primary competitors in
this industry include both large, diversifi ed fi nancial institutions
and commodity-oriented businesses, smaller fi rms that focus on
specifi c products or regional markets and independent FCMs.
A number of our competitors have signifi cantly greater fi nancial,
technical, marketing and other resources than we have. Some of
them may:
• off er alternative forms of fi nancial intermediation as a result
of superior technology and greater availability of information;
•off er a wider range of services and products than we off er;
•be larger and better capitalized;
•have greater name recognition; and
•have more extensive customer bases.
 ese competitors may be able to respond more quickly to new
or evolving opportunities and customer requirements.  ey may
also be able to undertake more extensive promotional activities
and off er 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.  is has created demand for more sophisticated
levels of customer service. Providing these services may entail
considerable cost without an off setting 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
signifi cant market share.