INTL FCStone 2013 Annual Report Download - page 128

INTLFCSTONEINC.Form10K 107
PART II
ITEM 8Financial Statements and Supplementary Data
NOTE 22 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 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 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 and base metals, as well as certain other
related commodities. For base metals, following the exit of the
physical trading business, this will involve acting as a Category
One ring dealing member of the LME, providing execution,
clearing and advisory services in exchange-traded futures and
OTC products. In precious metals, in addition to oering OTC
products, the Company acts as a principal, committing its own
capital to buy and sell precious 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 in ‘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 and provides execution
in select debt instruments and exchange-traded funds (“ETFs”).
e Company provides execution and liquidity to national broker-
dealers, regional broker-dealers and institutional investors. e
Company also provides global execution services for institutional
customers, including hedge funds, pension funds, broker-dealers
and banks located primarily in Latin America, the Caribbean,
North America and Europe.
e Company makes markets in approximately 800 ADRs and
foreign ordinary shares traded in the OTC market. In addition,
the Company will, on request, make prices in more than 8,000
other ADRs and foreign common shares. As a market-maker, the
Company provides trade execution services by oering to buy
shares from, or sell shares to, broker-dealers and institutions. e
Company displays the prices at which it is willing to buy and
sell these securities and adjusts its prices in response to market
conditions. When acting as principal, the Company commits its