INTL FCStone 2011 Annual Report Download - page 62

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INTL FCSTONE INC.Form10K48
PARTII
ITEM 7A Quantitative and Qualitative Disclosures about Market Risk
estimates of whether additional taxes and interest will be due.
ese tax liabilities are recognized when despite our belief that
our tax return positions are supportable, we believe that certain
positions may not be fully sustained upon review by the relevant
tax authorities.
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for
the estimated future tax consequences attributable to diff erences
between the fi nancial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates in eff ect
for the year in which those temporary diff erences are expected
to be recovered or settled. e eff ect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. Signifi cant judgment
is also required in determining any valuation allowance recorded
against deferred tax assets. In assessing the need for a valuation
allowance, management considers all available evidence for each
jurisdiction including past operating results, estimates of future
taxable income, and the feasibility of ongoing tax planning
strategies. In the event that we changes our determination as to the
amount of deferred tax assets that can be realized, we will adjust
our valuation allowance with a corresponding impact to income
tax expense in the period in which such determination is made.
We believe that our accruals for tax liabilities are adequate for all
open audit years based on our assessment of many factors including
past experience and interpretations of tax law. is assessment
relies on estimates and assumptions and may involve series of
complex judgments about future events. To the extent that new
information becomes available which causes us to change our
judgment regarding the adequacy of existing tax liabilities, such
changes to tax liabilities will impact income tax expense in the
period in which such determination is made. e consolidated
provision for income taxes will change period to period based on
non-recurring events, such as the settlement of income tax audits
and changes in tax law, as well as recurring factors including the
geographic mix of income before taxes, state and local taxes, and
the eff ects of various global income tax strategies.
ITEM 7A Quantitative and Qualitative Disclosures
about Market Risk
See also Note6 to the Consolidated Financial Statements, ‘Financial Instruments with Off -Balance Sheet Risk and Concentrations
of Credit Risk’.
Market Risk
e Company conducts its market-making and trading activities
predominantly as a principal, which subjects its capital to
signifi cant risks. ese risks include, but are not limited to,
absolute and relative price movements, price volatility and changes
in liquidity, over which the Company has virtually no control.
e Company’s exposure to market risk varies in accordance
with the volume of client-driven market-making transactions,
the size of the proprietary positions and the volatility of the
fi nancial instruments traded.
e Company seeks to mitigate exposure to market risk by
utilizing a variety of qualitative and quantitative techniques:
•Diversifi cation of business activities and instruments;
•Limitations on positions;
•
Allocation of capital and limits based on estimated weighted
risks; and
•
Daily monitoring of positions and mark-to-market profi tability.
e Company utilizes derivative products in a trading capacity as
a dealer to satisfy client needs and mitigate risk. e Company
manages risks from both derivatives and non-derivative cash
instruments on a consolidated basis. e risks of derivatives
should not be viewed in isolation, but in aggregate with the
Company’s other trading activities.
Management believes that the volatility of revenues is a key
indicator of the eff ectiveness of its risk management techniques.
e graph below summarizes volatility of the Company’s daily
revenue, determined on a marked-to-market basis, during the
year ended September30,2011.