INTL FCStone 2012 Annual Report Download - page 76
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Please find page 76 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.Form10K60
PART II
ITEM 8 Financial Statements and Supplementary Data
Cash, Securities and Other Assets Segregated
under Federal and other Regulations
Pursuant to requirements of the Commodity Exchange Act in
the U.S. and similarly in the United Kingdom (“UK”), pursuant
to the Markets in Financial Instruments Implementing Directive
2006/73/EC underpinning the Client Asset or ‘CASS’ rules in the
Financial Services Authority (“FSA”) handbook, funds deposited
by customers relating to futures and options-on-futures contracts
in regulated commodities must be carried in separate accounts
which are designated as segregated customer accounts. e deposits
in segregated customer accounts are not commingled with the
funds of the Company. Under the FSA’s rules, certain categories
of clients may choose to opt-out of segregation. As of September
30, 2012 and 2011, cash, securities and other assets segregated
under federal and other regulations consisted of cash held at
banks and money market funds of approximately $284.7 million
and $96.7 million, respectively, U.S. government securities and
federal agency obligations of approximately $50.5 million and
$3.7 million, respectively, and commodities warehouse receipts
of approximately $22.3 million and $19.0 million, respectively
(see fair value measurements discussion in Note 3 ).
Securities purchased under agreements
to resell
e Company has an overnight sweep reverse repurchase agreement
program to allow the Company to enter into secured overnight
investments (reverse repurchase agreements or reverse repos),
which generally provides a higher investment yield than a regular
operating account. e reverse repurchase agreements are recorded
at amounts at which the securities were initially acquired. It is
the policy of the Company to take possession of the securities
purchased under agreements to resell. e Company receives U.S.
Treasury securities as collateral for the overnight agreements. e
securities received are recorded at no more than the lesser of the
current fair value of the securities or the net amount to be realized
by the Company upon resale of the securities. e maturity of
the reverse repurchase agreements is typically one day, at which
point the securities are sold and the proceeds are returned to the
Company, plus any accrued interest. ere were no agreements
to resell securities as of September 30, 2012 and 2011.
Deposits and Receivables from Exchange-
Clearing Organizations, Broker-dealers,
Clearing Organizations and Counterparties,
and Payables to Broker-dealers, Clearing
Organizations and Counterparties
As required by the regulations of the U.S. Commodity Futures
Trading Commission (“CFTC”) and the Markets in Financial
Instruments Implementing Directive 2006/73/EC underpinning
the CASS rules in the FSA handbook, customer funds received to
margin, guarantee, and/or secure commodity futures transactions
are segregated and accounted for separately from the general
assets of the Company. Under the FSA’s rules, certain categories
of clients may choose to opt-out of segregation. Deposits with
exchange-clearing organizations, broker-dealers and counterparties
pertain primarily to deposits made to satisfy margin requirements
on customer and proprietary open futures and options-on-
futures positions and to satisfy the requirements set by clearing
exchanges for clearing membership. e Company also pledges
margin deposit with various counterparties for OTC derivative
contracts, and these deposits are also included in deposits and
receivables from broker-dealers and counterparties. Deposits
with and receivables from exchange-clearing organizations and
broker-dealers and counterparties are reported gross, except where
a right of o set exists. As of September 30, 2012 and 2011,
the Company had cash and cash equivalents on deposit with
or pledged to exchange-clearing organizations, broker-dealers
and counterparties of $0.4 billion and $1.2 billion, respectively.
ese balances also include securities pledged by the Company
on behalf of customers and customer-owned securities that are
pledged. It is the Company’s practice to include customer owned
securities on its consolidated balance sheets, as the rights to those
securities have been transferred to the Company under the terms
of the futures trading agreement. Securities pledged include
U.S. Treasury bills and instruments backed by U.S. government
sponsored entities and government-sponsored enterprise backed
mortgage-backed securities (“mortgage-backed securities”). e
securities that are not customer-owned are adjusted to fair value
with associated changes in unrealized gains or losses recorded
in OCI, net of tax, until realized, a component of stockholders’
equity. For customer owned securities, the change in fair value is
o set against the payable to customers with no impact recognized
on the consolidated income statements.
e securities, primarily U.S. Government obligations and
mortgage-backed securities, held by FCStone LLC (“FCStone”),
a subsidiary of INTL, as collateral or as margin have been
deposited with exchange-clearing organizations, broker-dealers
or other counterparties. e fair value of these securities was
approximately $1.3 billion and $0.5 billion as of September 30,
2012 and 2011, respectively.
Management has considered guidance required by the Transfers
and Servicing Topic of the ASC as it relates to securities pledged
by customers to margin their accounts. Based on a review of
the agreements with the customer, management believes a legal
basis exists to support that the transferor surrenders control over
those assets if all of the following three conditions are met: (a)
the transferred assets have been isolated from the transferor—put
presumptively beyond the reach of the transferor and its creditors,
even in bankruptcy or other receivership, (b) each transferee has
the right to pledge or exchange the assets (or bene cial interests)
it received, and no condition both constrains the transferee (or
holder) from taking advantage of its right to pledge or exchange
and provides more than a trivial bene t to the transferor and
(c) the transferor does not maintain e ective control over the
transferred assets through either (1) an agreement that both