INTL FCStone 2011 Annual Report Download - page 73

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INTL FCSTONE INC.Form10K 59
PART II
ITEM 8 Consolidated Financial Statements and Supplementary Data
Deposits and Receivables from Exchange-
Clearing Organizations, Broker-dealers,
Clearing Organizations and Counterparties,
and Payables to Broker-dealers, Clearing
Organizations and Counterparties
As required by the regulations of the U.S. Commodity Futures
Tr a d i n g C o m m i s s i o n ( “ C F T C ” ) , c u s t o m e r f u n d s r e c e i v e d t o
margin, guarantee, and/or secure commodity futures transactions
are segregated and accounted for separately from the general assets
of the Company. Deposits with exchange-clearing organizations,
broker-dealers and counterparties pertain primarily to deposits
made to satisfy margin requirements on customer and proprietary
open futures and options on futures positions and to satisfy the
requirements set by clearing exchanges for clearing membership.
As of September30,2011 and 2010, the Company had cash and
cash equivalents on deposit with or pledged to exchange-clearing
organizations, broker-dealers and counterparties of $1.2billion
and $532.1million, respectively.
ese balances also include securities pledged by the Company
on behalf of customers and customer-owned securities that are
pledged. It is the Company’s practice to include customer owned
securities on its consolidated balance sheets, as the rights to those
securities have been transferred to the Company under the terms
of the futures trading agreement. Securities pledged include
U.S. Treasury bills and instruments backed by U.S. government
sponsored entities and government-sponsored enterprise backed
mortgage-backed securities (“mortgage-backed securities”). e
securities that are not customer-owned are adjusted to fair value
with associated changes in unrealized gains or losses recorded
in OCI, net of tax, until realized, a component of stockholders’
equity. For customer owned securities, the change in fair value
is off set against the customer accounts payable with no impact
recognized on the consolidated income statements.
e securities, primarily U.S. Government obligations and
mortgage-backed securities, held by FCStone as collateral or as
margin have been deposited with exchange-clearing organizations,
broker-dealers or other counterparties. e fair value of these
securities was approximately $479.2million and $998.1million
as of September30,2011 and 2010, respectively.
Management has considered guidance required by the Transfers
and Servicing Topic of the ASC as it relates to securities pledged
by customers to margin their accounts. Based on a review of
the agreements with the customer, management believes a legal
basis exists to support that the transferor surrenders control over
those assets if all of the following three conditions are met: (a)
the transferred assets have been isolated from the transferor—put
presumptively beyond the reach of the transferor and its creditors,
even in bankruptcy or other receivership, (b) each transferee has
the right to pledge or exchange the assets (or benefi cial interests)
it received, and no condition both constrains the transferee (or
holder) from taking advantage of its right to pledge or exchange
and provides more than a trivial benefi t to the transferor and
(c) the transferor does not maintain eff ective control over the
transferred assets through either (1) an agreement that both
entitles and obligates the transferor to repurchase or redeem
them before their maturity or (2) the ability to unilaterally cause
the holder to return specifi c assets, other than through a cleanup
call. Under this guidance, the Company refl ects the customer
collateral assets and corresponding liabilities in the Company’s
consolidated balance sheets as of September30,2011 and 2010.
In addition to margin, deposits with exchange-clearing
organizations include guaranty deposits. e guaranty deposits
are held by the clearing organization for use in potential default
situations by one or more members of the clearing organization.
e guaranty deposits may be applied to the Company’s obligations
to the clearing organization, or to the clearing organization’s
obligations to other clearing members or third parties. Deposits
with and receivables from exchange-clearing organizations and
broker-dealers and counterparties are reported gross, except
where a right of off set exists.
e Company maintains customer omnibus and proprietary
accounts with other counterparties, and the equity balances in
those accounts along with any margin cash or securities deposited
with the carrying broker are included in deposits and receivables
from broker-dealers and counterparties.
e Company pledges margin deposit with various counterparties
for OTC derivative contracts, and the deposits are included in
deposits and receivables from counterparties.
Receivables from and payables to exchange-clearing organizations
are primarily comprised of amounts due from or due to exchange-
clearing organizations for daily variation settlements on open
futures and options on futures positions. e variation settlements
due from or due to exchange-clearing organizations are paid in
cash on the following business day.
Receivables from and Payables to Customers
Receivables from customers, net of the allowance for doubtful
accounts, include the total of net defi cits in individual futures
trading accounts carried by the Company. Customer defi cits
arise from realized and unrealized trading losses on futures and
options on futures positions and amounts due on cash and margin
transactions. Customer defi cit accounts are reported gross of
customer accounts that contain net credit or positive balances,
except where a right of off set exists. Net defi cits in individual
futures trading accounts include both secured and unsecured
defi cit balances due from customers as of the balance sheet
date. Secured defi cit amounts are backed by U.S. Treasury bills
and notes with a fair value of $0.4million and $0.2million as
of September30,2011 and 2010, respectively, and commodity
warehouse receipts with a fair value of $16.2million as of
September30,2011. ese U.S Treasury bills and notes and
commodity warehouse receipts are not netted against the secured
defi cit amounts, as the conditions for right of setoff have not
been met.