INTL FCStone 2011 Annual Report Download - page 90

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INTL FCSTONE INC.Form10K76
PART II
ITEM 8 Consolidated Financial Statements and Supplementary Data
Listed below are the fair values of the Company’s derivative assets and liabilities as of September30,2011 and 2010. Assets represent
net unrealized gains and liabilities represent net unrealized losses.
(in millions)
September30,2011 September30,2010
Assets(1) Liabilities(1) Assets(1) Liabilities(1)
Derivative contracts not accounted for as hedges:
Exchange-traded commodity derivatives $ 7,074.2 $ 6,062.4 $ 4,126.2 $ 5,332.6
OTC commodity derivatives 763.7 780.1 563.3 562.9
Exchange-traded foreign exchange derivatives 126.9 89.8 84.6 98.7
OTC foreign exchange derivatives(2)(3) 1,074.3 1,118.9 512.6 478.3
Interest rate derivatives 5.5 2.8 22.5 18.6
Equity index derivatives 71.7 79.7 2.8 7.6
Derivative contracts accounted for as hedges:
Interest rate derivatives — — — 1.1
Gross fair value of derivative contracts 9,116.3 8,133.7 5,312.0 6,499.8
Impact of netting and collateral (9,262.6) (8,010.8) (5,791.7) (6,412.2)
Total fair value included in ‘Deposits and receivables
fromexchange-clearing organizations’ $ (264.3) $ (519.9)
Total fair value included in ‘Deposits and receivables from broker-dealers,
clearing organizations and counterparties’ $ 16.1 $ —
Total fair value included in ‘Financial instruments owned, at fair value’ $ 101.9 $ 40.2
Fair value included in ‘Financial instruments sold, not yet purchased,
atfair value’ $ 122.9 $ 87.6
(1) As of September30,2011 and 2010, the Company’s derivative contract volume for open positions was approximately 3.9million and 3.5million contracts, respectively.
(2) In accordance with agreements with counterparties, the Company is allowed to periodically take advances against its open trade fair value. These amounts exclude
advances against open trade fair value of $0 and $27.0million outstanding as of September30,2011 and 2010, respectively.
(3) In accordance with agreements with counterparties, the Company has to maintain a sufficient margin collateral balance based on the value of the open positions.
These amounts exclude deposits with the counterparties for margin collateral, which are included in netting and collateral line, of $53.5million and $0 as of
September30,2011 and 2010, respectively.
e Company’s derivative contracts are principally held in
its Commodities and Risk Management Services (“C&RM”)
segment. e Company assists its C&RM segment customers
in protecting the value of their future production by entering
into option or forward agreements with them on an OTC basis.
e Company also provides its C&RM segment customers with
sophisticated option products, including combinations of buying
and selling puts and calls. e Company mitigates its risk by
generally off setting the customer’s transaction simultaneously
with one of the Company’s trading counterparties or will off set
that transaction with a similar but not identical position on the
exchange. e risk mitigation of these off setting trades is not
within the documented hedging designation requirements of
the Derivatives and Hedging Topic of the ASC. ese derivative
contracts are traded along with cash transactions because of
the integrated nature of the markets for these products. e
Company manages the risks associated with derivatives on an
aggregate basis along with the risks associated with its proprietary
trading and market-making activities in cash instruments as part
of its fi rm-wide risk management policies. In particular, the risks
related to derivative positions may be partially off set by inventory,
unrealized gains in inventory or cash collateral paid or received.
e following table sets forth the Company’s gains (losses)
related to derivative fi nancial instruments for the fi scal year
ended September30,2011,2010 and 2009, in accordance
with the Derivatives and Hedging Topic of the ASC. e gains
(losses) set forth below are included within ‘trading gains’ in the
consolidated income statements.
(in millions)
Year Ended September30,
2011 2010 2009
Gains (losses) from derivative contracts $ 52.6 $ (3.3) $ (26.1)
Periodically, the Company uses interest rate swap contracts to
hedge certain forecasted transactions. e Company’s primary
objective in holding these types of derivatives is to reduce the
volatility of earnings and cash fl ows associated with changes in
interest rates. e Company had two interest rate swap contracts,
each with a notional amount of $50million, that matured during
the fi scal year ended September30,2011. e interest rate swap
contracts were entered into in order to hedge potential changes
in cash fl ows resulting from the Company’s variable rate LIBOR
based borrowings.
e interest rate swaps were initially classifi ed under the Derivatives
and Hedging Topic of the ASC as cash fl ow hedges. As a result
of decreased borrowings by the Company in fi scal year2010, it
was determined that one of the interest rate swaps no longer met