INTL FCStone 2012 Annual Report Download - page 47
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Please find page 47 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.Form10K 31
PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Act (the “Dodd-Frank Act”). e Dodd-Frank Act created a
comprehensive new regulatory regime governing the OTC and
listed derivatives markets and their participants by requiring,
among other things: centralized clearing of standardized derivatives
(with certain stated exceptions); the trading of clearable derivatives
on swap execution facilities or exchanges; and registration and
comprehensive regulation of new categories of market participants
as “swap dealers” and swap “introducing brokers.” e CFTC’s
and SEC’s joint nal rule de ning swap dealers and major swap
participants (“Entity De nitions”) became e ective on July 23,
2012. e CFTC’s and SEC’s joint nal rule further de ning the
term “swap” became e ective on October 12, 2012. In a series
of no-action letters, dated October 12, 2012, the CFTC delayed
the compliance dates for many rules, including the registration
requirements for swap dealers, rules relating to con icts of
interest, and business conduct standards.We currently expect
to register our subsidiary, INTL Hanley LLC, as a swap dealer
on December 31, 2012. Nevertheless, because many of the rules
a ecting this business, including those setting capital and margin
requirements, have not been nalized or fully implemented,
we cannot predict with any degree of certainty how we will be
a ected. e Company will continue to monitor all applicable
developments in the implementation of the Dodd-Frank Act.
e legislation and implementing regulations may not only
a ect us, but also many of our customers and counterparties.
Although the original date set for completion of nal rules was
mid-July 2011, the CFTC has announced that it will phase in
its new rules through at least March 31, 2013.
Fiscal 2012 Highlights
•
Achieved record operating and adjusted operating revenues of
$457.7 million and $464.5 million, respectively.
•
Increased average customer segregated assets on deposit to $1.9
billion during scal 2012.
•
Expanded our three-year syndicated committed loan by $10.0
million to $95.0 million.
•
Successfully acquired and integrated Co ee Network, the
Metals Division of MF Global UK Limited, TRX Futures
Limited and Aporte DTVM.
•
Obtained London Metals Exchange Category One ring dealing
membership.
•
Opened two new o ces in Goiani and Recife, Brazil bringing
the Company to a total of six o ces in the country.
•
Increased exchange traded and OTC contract volumes by 59%
and 38%, respectively, from scal 2011.
Executive Summary
e Company experienced operating revenue growth during 2012,
driven by signi cant increases in exchange traded revenues in our
CES segment, increases in OTC revenues in our core C&RM
segment and the addition of the LME metals team from MF Global
in the rst quarter of scal 2012. OTC contract volumes in our
soft commodities product line increased 38% compared to 2011,
driven by growth in Brazil, Mexico, Latin America and Europe.
Despite the dampening e ect of global economic conditions and
the disruption caused by the MF Global bankruptcy on overall
industry volumes, exchange traded volumes in the C&RM segment
grew modestly in 2012 as a result of volatility in agricultural
commodities during the third and fourth quarters of 2012 related
to the drought in the U.S. midwest. e growth in customers
following the bankruptcy of MF Global, contributed to signi cant
growth in overall exchange traded contract volumes and revenues
in our CES segment during 2012. During the rst quarter of
scal 2012, the Company acquired the Metals Division of MF
Global UK Limited. is Division was a leading LME member,
with more than 50 professional sta serving over 600 commercial
customers, mostly involved in hedging activities. Subsequent to
this transaction, the Company applied for and received a Category
One ring dealing membership on the LME. e addition of
this LME Metals team increased our operating revenues by
$21.9 million in 2012.
On June 15, 2012, London Metal Exchange Holdings Limited, the
parent company of the LME, entered into a framework agreement
regarding the terms of a recommended cash o er for the entire issued
and outstanding ordinary share capital of LME Holdings. On July
23, 2012, the shareholders of LME Holdings voted to approve the
sale of the LME to the Hong Kong Exchanges & Clearing Limited.
Based on the proposed sale price of the ordinary shares, the shares
of the LME held by the Company were valued at $8.7 million
as of September 30, 2012. e shares held by the Company, that
have been designated as available-for-sale, re ect an unrealized gain
of $6.3 million net of income tax expense of $2.0 million. is
unrealized gain is recorded in OCI as of September 30, 2012. In
late November 2012, the Financial Services Authority approved
the change of ownership of the LME. e Company expects to
collect payment for the sale of their shares and to reclassify the
unrealized gain in accumulated OCI and recognize the realized
gain in earnings in the rst quarter of scal year 2013.
e pro tability of our C&RM and CES segments continued to
be constrained by low short term interest rates as well as increased
costs associated with the expansion of these segments, particularly