INTL FCStone 2013 Annual Report Download - page 26

INTLFCSTONEINC.Form10K 5
PART I
ITEM1Business
generally accepted in the U.S. (“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, our reported earnings from commodities
trading may be subject to signicant volatility when calculated
under U.S. GAAP.
Foreign Exchange
We provide treasury, global payment, and foreign exchange
services to nancial institutions, multi-national corporations,
government organizations and charitable organizations. We
also assist commercial customers with the execution of foreign
exchange hedging strategies. We transact in over 130 currencies
and specializes in smaller, more dicult emerging markets where
there is limited liquidity. In addition, we execute trades based
on the foreign currency ows inherent in our existing business
activities. We primarily act as a principal in buying and selling
foreign currencies on a spot basis. We derive revenue from the
dierence between the purchase and sale prices.
We also provide spot foreign currency trading for eligible contract
participants and high net worth retail customers and operate a
proprietary foreign exchange desk which arbitrages the futures
and cash markets.
Securities
rough INTL FCStone Securities Inc. (“INTL FCStone
Securities”), a registered broker-dealer, we act 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”).
INTL FCStone Securities provides execution and liquidity to
national and regional broker-dealers and institutional investors.
We make markets in approximately 800 ADRs and foreign
ordinary shares traded in the OTC market. In addition, we will,
on request, make prices in more than 8,000 other ADRs and
foreign common shares. As a market maker, we provide trade
execution services by oering to buy shares from, or sell shares to,
broker-dealers and institutions. We display the prices at which we
are willing to buy and sell these securities and adjusts our prices
in response to market conditions. When acting as principal, we
commit our own capital and derive revenue from the dierence
between the prices at which we buy and sell shares. We also earn
commissions by executing trades on an agency basis.
While our customers are other broker-dealers and institutions,
the business tends to be driven by the needs of the private clients
of those broker-dealers and institutions. e size of private client
trades may be uneconomical for the in-house international
equities trading desks of our customers to execute. We are able
to provide execution of smaller trades at protable margins.
We provide commercial customers with a full range of investment
banking services from optimizing the customer’s capital structure
through the issuance of loans, debt or equity securities and advisory
services including mergers, acquisitions and restructurings.
We seek to market these services to our existing commercial
customer base, particularly in North and South America, and to
develop new customer relationships with whom we can cross-sell
our full suite of nancial services. From time-to-time, we may
invest our own capital in debt instruments before selling them
into the market.
Clearing and Execution Services (“CES”)
We provide competitive and ecient clearing and execution
of exchange-traded futures and options-on-futures for the
institutional and professional traders through our subsidiary,
FCStone, LLC. rough its platform, we accept customer orders
and direct them to the appropriate exchange for execution. We
then facilitate the clearing of customers’ transactions. Clearing
involves the matching of customers’ trades with an exchange, the
collection and management of margin deposits to support the
transactions, and the accounting and reporting of the transactions
to customers. We seek to leverage our capabilities and capacity
by oering facilities management or outsourcing solutions to
other FCMs.
FCStone, LLC is a registered FCM and a clearing member
of all major U.S. commodity futures exchanges including the
Chicago Mercantile Exchange and its divisions: the Chicago
Board of Trade, the New York Mercantile Exchange and the
COMEX Division; InterContinental Exchange, Inc. (“ICE”)
Futures US, and the Minneapolis Grain Exchange (“MGEX”).
As of September 30, 2013, FCStone, LLC was the third largest
independent FCM in the United States, as measured by required
customer segregated assets, not aliated with a major nancial
institution or commodity intermediary, end-user or producer.
As of September 30, 2013, FCStone, LLC had $1.7 billion in
required customer segregated assets.
Other
is segment consists of our asset management and commodity
nancing and facilitation business. e asset management
revenues include fees, commissions and other revenues we receive
for management of third-party assets and investment gains or
losses on our investments in funds and proprietary accounts
managed either by our investment managers or by independent
investment managers.
We operate a commodity nancing and facilitation business
that makes loans to commercial commodity-related companies
against physical inventories, including grain, lumber, meats,
energy products, and renewable fuels. We use sale and repurchase
agreements to purchase commodities evidenced by warehouse