INTL FCStone 2012 Annual Report Download - page 120
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Please find page 120 of the 2012 INTL FCStone annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.INTL FCSTONE INC.Form10K104
PART II
ITEM 8 Financial Statements and Supplementary Data
NOTE 21 Segment and Geographic Information
e Company reports its operating segments based on services
provided to customers. e Company’s activities are divided
into the following ve functional areas:
• Commodity and Risk Management Services
• Foreign Exchange
• Securities
• Clearing and Execution Services
• Other
Commodity and Risk Management Services
(C&RM)
e Company serves its commercial customers through its
force of approximately 188 risk management consultants with
a high value added service that di erentiates the Company from
other competitors and maximizes the opportunity to retain
customers. e Integrated Risk Management Program (“IRMP®”)
involves providing customers with commodity risk management
consulting services that are designed to develop a customized long
term hedging program to help them mitigate their exposure to
commodity price risk and maximize the amount and certainty
of their operating pro ts. Customers are assisted in the execution
of their hedging strategies through the Company’s exchange-
traded futures and options clearing and execution operations
and through access to more customized alternatives provided
by the OTC trading desk. Generally, customers direct their own
trading activity and risk management consultants do not have
discretionary authority to transact trades on behalf of customers.
When transacting OTC contracts with customers, the Company
may o set the customer’s transaction simultaneously with one of
its trading counterparties. Alternatively, the OTC trade desk will
accept a customer transaction and o set that transaction with a
similar but not identical position on the exchange.
In addition, the Company provides a full range of trading and
hedging capabilities to select producers, consumers, recyclers and
investors in precious metals and certain base metals. Acting as
a principal, the Company commits its own capital to buy and
sell the metals on a spot and forward basis.
e Company records its physical commodities revenues on a
gross basis. Operating revenues and losses from the Company’s
commodities derivatives activities are included within ‘trading
gains, net’ in the consolidated income statements. Inventory for
the commodities business is valued at the lower of cost or fair
value under the provisions of the Inventory Topic of the ASC.
e Company generally mitigates the price risk associated with
commodities held in inventory through the use of derivatives.
e Company does not elect hedge accounting under U.S. GAAP
in accounting for this price risk mitigation. In such situations,
unrealized gains in inventory are not recognized under U.S. GAAP,
but unrealized gains and losses in related derivative positions
are recognized under U.S. GAAP. As a result, the Company’s
reported earnings from commodities trading may be subject to
signi cant volatility when calculated under U.S. GAAP.
Foreign Exchange
e Company provides treasury, global payment and foreign
exchange services to nancial institutions, multi-national
corporations, government organizations and charitable
organizations as well as assisting commercial customers with the
execution of foreign exchange hedging strategies. e Company
transacts in over 130 currencies and specializes in smaller, more
di cult emerging markets where there is limited liquidity. In
addition, the Company executes trades based on the foreign
currency ows inherent in the Company’s existing business
activities. e Company primarily acts as a principal in buying
and selling foreign currencies on a spot basis. e Company
derives revenue from the di erence between the purchase and
sale prices.
e Company also provides spot foreign currency trading for
a customer base of eligible contract participants and high net
worth retail customers as well as operating a proprietary foreign
exchange desk which arbitrages the futures and cash markets.
Securities
rough INTL FCStone Securities Inc., the Company acts as
a wholesale market maker in select foreign securities including
unlisted ADRs and foreign ordinary shares. INTL FCStone
Securities Inc. provides execution and liquidity to national
broker-dealers, regional broker-dealers and institutional investors.
e Company also originates, structures and places a wide array
of emerging market debt instruments in the international and
domestic capital markets. ese instruments include complex
asset backed securities, unsecured bond and loan issues, negotiable
notes and other trade-related debt instruments used in cross-
border trade nance. On occasions the Company may invest
its own capital in debt instruments before selling them. It also
actively trades in a variety of international debt instruments.
Clearing and Execution Services (CES)
e Company seeks to provide competitive and e cient clearing
and execution of exchange-traded futures and options for the
institutional and professional trader market segments. rough
its platform, customer orders are accepted and directed to the
appropriate exchange for execution. e Company then facilitates
the clearing of customers’ transactions. Clearing involves the
matching of customers’ trades with the exchange, the collection
and management of margin deposits to support the transactions,
and the accounting and reporting of the transactions to customers.