INTL FCStone 2012 Annual Report Download - page 66
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Please find page 66 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.Form10K50
PART II
ITEM 7A Quantitative and Qualitative Disclosures about Market Risk
ITEM 7A Quantitative and Qualitative Disclosures
about Market Risk
See also Note 4 to the Consolidated Financial Statements, ‘ Financial Instruments with O -Balance Sheet Risk and Concentrations
of Credit Risk ’.
Market Risk
e Company conducts its market-making and trading activities
predominantly as a principal, which subjects its capital to
signi cant risks. ese risks include, but are not limited to,
absolute and relative price movements, price volatility and changes
in liquidity, over which the Company has virtually no control.
e Company’s exposure to market risk varies in accordance
with the volume of client-driven market-making transactions,
the size of the proprietary positions and the volatility of the
nancial instruments traded.
e Company seeks to mitigate exposure to market risk by
utilizing a variety of qualitative and quantitative techniques:
•Diversi cation of business activities and instruments;
•Limitations on positions;
•
Allocation of capital and limits based on estimated weighted
risks; and
•
Daily monitoring of positions and mark-to-market pro tability.
e Company utilizes derivative products in a trading capacity as
a dealer to satisfy client needs and mitigate risk. e Company
manages risks from both derivatives and non-derivative cash
instruments on a consolidated basis. e risks of derivatives
should not be viewed in isolation, but in aggregate with the
Company’s other trading activities.
Management believes that the volatility of revenues is a key
indicator of the e ectiveness of its risk management techniques.
e graph below summarizes volatility of the Company’s daily
revenue, determined on a marked-to-market basis, during the
year ended September30, 2012.
MTM Revenue in Chart
Days
Daily Revenue ($000’s)
10
20
30
40
50
60
70
80
90
0
($500)
to
$0
$0
to
$500
$500
to
$1,000
$1,000
to
$1,500
$1,500
to
$2,000
$2,000
to
$2,500
$2,500
to
$3,000
$3,000
to
$3,500
$3,500
to
$4,000
$4,000
to
$4,500
$4,500
to
$5,000
1
12
37
80
62
40
6
13
1
41
In the Company’s securities market-making and trading activities,
the Company maintains inventories of equity and debt securities.
In the Company’s commodities market-making and trading
activities, the Company’s positions include physical inventories,
forwards, futures and options. e Company’s commodity
trading activities are managed as one consolidated book for each
commodity encompassing both cash positions and derivative
instruments. e Company monitors the aggregate position for
each commodity in equivalent physical ounces or metric tons.