INTL FCStone 2012 Annual Report Download - page 30
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Please find page 30 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.Form10K14
PART I
ITEM 1A Risk Factors
and foreign exchange. ese activities are subject to a number of
risks, including risks of price uctuations, rapid changes in the
liquidity of markets and counterparty creditworthiness.
These risks may limit our ability to either resell financial
instruments we purchased or to repurchase securities we sold
in these transactions. In addition, we may experience di culty
borrowing nancial instruments to make delivery to purchasers
to whom we sold short, or lenders from whom we have borrowed.
From time to time, we have large position concentrations in
securities of a single issuer or issuers in speci c countries and
markets. is concentration could result in higher trading
losses than would occur if our positions and activities were less
concentrated.
e success of our market-making activities depends on:
•
the price volatility of speci c nancial instruments, currencies
and commodities,
•our ability to attract order ow;
•the skill of our personnel;
•the availability of capital; and
•general market conditions.
To attract market-trading, market-making and trading business,
we must be competitive in:
•providing enhanced liquidity to our customers;
•the e ciency of our order execution;
•the sophistication of our trading technology; and
•the quality of our customer service.
In our role as a market maker and trader, we attempt to derive
a pro t from the di erence between the prices at which we buy
and sell nancial instruments, currencies and commodities.
However, competitive forces often require us to:
•match the quotes other market makers display; and
•
hold varying amounts of nancial instruments, currencies and
commodities in inventory.
By having to maintain inventory positions, we are subject to a high
degree of risk. We cannot ensure that we will be able to manage
our inventory risk successfully or that we will not experience
signi cant losses, either of which could materially adversely
a ect our business, nancial condition and operating results.
We operate as a principal in the OTC derivatives
markets which involves the risks associated with
commodity derivative instruments.
We o er OTC derivatives to our customers in which we act as
a principal counterparty. We endeavor to simultaneously o set
the commodity price risk of the instruments by establishing
corresponding o setting positions with commodity counterparties,
or alternatively we may o set those transactions with similar but
not identical positions on an exchange. To the extent that we are
unable to simultaneously o set an open position or the o setting
transaction is not fully e ective to eliminate the commodity
derivative risk, we have market risk exposure on these unmatched
transactions. Our exposure varies based on the size of the overall
positions, the terms and liquidity of the instruments brokered,
and the amount of time the positions remain open.
To the extent an unhedged position is not disposed of intra-
day, adverse movements in the commodities underlying these
positions or a downturn or disruption in the markets for these
positions could result in a substantial loss. In addition, any
principal gains and losses resulting from these positions could
on occasion have a disproportionate e ect, positive or negative,
on our nancial condition and results of operations for any
particular reporting period.
Transactions involving OTC derivative contracts may be adversely
a ected by uctuations in the level, volatility, correlation or
relationship between market prices, rates, indices and/or other
factors. ese types of instruments may also su er from illiquidity
in the market or in a related market.
OTC derivative transactions are subject to
unique risks.
OTC derivative transactions are subject to the risk that, as a
result of mismatches or delays in the timing of cash ows due
from or to counterparties in OTC derivative transactions or
related hedging, trading, collateral or other transactions, we or
our counterparty may not have adequate cash available to fund
its current obligations.
We could incur material losses pursuant to OTC derivative
transactions because of inadequacies in or failures of our internal
systems and controls for monitoring and quantifying the risk
and contractual obligations associated with OTC derivative
transactions and related transactions or for detecting human
error, systems failure or management failure.
OTC derivative transactions may be modi ed or terminated
only by mutual consent of the original parties and subject to
agreement on individually negotiated terms. Accordingly it
may not be possible to modify, terminate or o set obligations
or exposure to the risk associated with a transaction prior to its
scheduled termination date.
e global nancial crisis that started in 2008
has heightened many of the risks to which the
Company is exposed. ese risks have been
further exacerbated by the current sovereign
debt crisis in Europe.
e nancial crisis that started in 2008 has increased many of the
risks that accompany the Company’s business, including the risk
of counterparty failure, the inability to obtain necessary nancing
and the absence of liquid markets. During 2012, these risks were
increased due to the sovereign debt crisis in Europe. Although