INTL FCStone 2013 Annual Report Download - page 41

INTLFCSTONEINC.Form10K20
PART I
ITEM1ARisk Factors
Low short-term interest rates negatively impact
ourprotability.
e level of prevailing short-term interest rates aects our
protability because we derive a portion of our revenue from
interest earned from the investment of funds deposited with us by
our customers. As of September 30, 2013, we had $1.7 billion in
customer segregated assets, which are generally invested in short-
term treasury securities and money market funds. Our nancial
performance generally benets from rising interest rates. Higher
interest rates increase the amount of interest income earned from
these customer deposits. If short-term interest rates remain low or
continue to fall, our revenues derived from interest will decline
which would negatively impact our protability.
Short-term interest rates are highly sensitive to factors that are
beyond our control, including general economic conditions and
the policies of various governmental and regulatory authorities.
In particular, decreases in the federal funds rate by the Board
of Governors of the Federal Reserve System usually lead to
decreasing interest rates in the U.S., which generally lead to a
decrease in short-term interest rates.
We may issue additional equity securities.
e issuance of additional common stock or securities convertible
into our common stock could result in dilution of the ownership
interest in us held by existing stockholders. We are authorized
to issue, without stockholder approval, a signicant number of
additional shares of our common stock and securities convertible
into either common stock or preferred stock.
We are subject to risks relating to litigation and
potential securities laws liability.
We face signicant legal risks in our businesses, including risks
related to currently pending litigation involving both the Company
and FCStone. Many aspects of our business involve substantial
risks of liability, including liability under federal and state securities
and commodities laws, other federal, state and foreign laws and
court decisions, as well as rules and regulations promulgated by the
SEC, the CFTC, FINRA, the FCA and other regulatory bodies.
Substantial legal liability or signicant regulatory action against
us and our subsidiaries could have adverse nancial eects or
cause signicant reputational harm to us, which in turn could
seriously harm our business prospects. Any such litigation could
lead to more volatility of our stock price.
For a further discussion of litigation risks, see Item 3—Legal
Proceedings below and Note 12 - Commitments and Contingencies
in the Consolidated Financial Statements.
We are subject to intense competition.
We derive a signicant portion of our revenues from market-
making and trading activities involving securities and commodities.
e market for these services, particularly market-making services
through electronic communications gateways, is rapidly evolving
and intensely competitive. We expect competition to continue
and intensify in the future. We compete primarily with wholesale,
national, and regional broker-dealers and FCMs, as well as
electronic communications networks. We compete primarily
on the basis of our expertise and quality of service.
We also derive a signicant portion of our revenues from
commodities risk management services. The commodity
risk management industry is very competitive and we expect
competition to continue to intensify in the future. Our primary
competitors in this industry include both large, diversied
nancial institutions and commodity-oriented businesses, smaller
rms that focus on specic products or regional markets and
independent FCMs.
A number of our competitors have signicantly greater nancial,
technical, marketing and other resources than we have. Some
of them may:
• oer alternative forms of nancial intermediation as a result
of superior technology and greater availability of information;
•oer a wider range of services and products than we oer;
•be larger and better capitalized;
•have greater name recognition; and
•have more extensive customer bases.
ese competitors may be able to respond more quickly to new
or evolving opportunities and customer requirements. ey may
also be able to undertake more extensive promotional activities
and oer more attractive terms to customers. Recent advances
in computing and communications technology are substantially
changing the means by which market-making services are delivered,
including more direct access on-line to a wide variety of services
and information. is has created demand for more sophisticated
levels of customer service. Providing these services may entail
considerable cost without an osetting increase in revenues. In
addition, current and potential competitors have established
or may establish cooperative relationships or may consolidate
to enhance their services and products. New competitors or
alliances among competitors may emerge and they may acquire
signicant market share.
We cannot assure you that we will be able to compete eectively
with current or future competitors or that the competitive
pressures we face will not have an adverse eect on our business,
nancial condition and operating results.