INTL FCStone 2014 Annual Report Download - page 119

INTL FCSTONE INC.  Form 10K 103
PART II
ITEM 8 Financial Statements and Supplementary Data
Global Payments
e Company provides global payment solutions to banks and
commercial businesses as well as charities and non-governmental
organizations and government organizations. e Company
offers payments services in over 150 countries, which it believes
is more than any other payments solution provider, and provides
competitive and transparent pricing. rough its technology
platform, full-service electronic execution capability and
commitment to customer service, the Company believes it is
able to provide simple and fast execution, ensuring delivery of
funds in any of these countries quickly through its global network
of correspondent banks. In this business, the Company primarily
acts as a principal in buying and selling foreign currencies on a
spot basis. e Company derives revenue from the difference
between the purchase and sale prices.
e Company believes its clients value the Company’s ability to
provide exchange rates that are significantly more competitive
than those offered by large international banks, a competitive
advantage that stems from our years of foreign exchange expertise
focused on smaller, less liquid currencies. Additionally, as a
member of SWIFT (Society for Worldwide Interbank Financial
Telecommunication), the Company is able to offer its services to
large money center and global banks seeking more competitive
international payments services.
Securities
rough INTL FCStone Securities Inc., the Company provides
value-added solutions that facilitate cross-border trading. e
Company believes its clients value the Company’s ability to
manage complex transactions, including foreign exchange,
utilizing its local understanding of market convention, liquidity
and settlement protocols around the world. e Company’s
clients include U.S.-based regional and national broker-dealers
and institutions investing or executing customer transactions in
international markets and foreign institutions seeking access to
the U.S. securities markets. e Company is one of the leading
market makers in foreign securities, including unlisted ADRs
and foreign ordinary shares. e Company makes markets in
approximately 800 ADRs and foreign ordinary shares traded in
the OTC market and will, on request, make prices in more than
8,000 other ADRs and foreign common shares. In addition, the
Company is a broker-dealer in Argentina where it is active in
providing institutional executions in the local capital markets.
e Company provides a full range of corporate finance advisory
services to its middle market clients, including capital market
solutions and a wide array of advisory services across a broad
spectrum of industries. e Company’s advisory services span
mergers and acquisitions, liability management, restructuring
opinions and valuations. e Company also originates, structures
and places a wide array of debt instruments in the international
and domestic capital markets. ese instruments include complex
asset-backed securities (primarily in Argentina), unsecured bond
and loan issues, negotiable notes and other trade-related debt
instruments used in cross-border trade finance. On occasion, the
Company may invest its own capital in debt instruments before
selling them. e Company also actively trades in a variety of
international debt instruments and operates an asset management
business in which it earns fees, commissions and other revenues
for management of third party assets and investment gains or
losses on its investments in funds and proprietary accounts
managed either by its investment managers or by independent
investment managers.
Physical Commodities
is segment consists of the Company’s physical precious metals
trading and physical agricultural and energy commodity business.
In precious metals, the Company provides a full range of trading
and hedging capabilities, including OTC products, to select
producers, consumers, and investors. In the Company’s trading
activities, it acts as a principal, committing its own capital to buy
and sell precious metals on a spot and forward basis.
e Company’s physical agricultural and energy commodity
business provides financing to commercial commodity-related
companies against physical inventories, including grain, lumber,
meats, energy products and renewable fuels. e Company uses
sale and repurchase agreements to purchase commodities evidenced
by warehouse receipts, subject to a simultaneous agreement to sell
such commodities back to the original seller at a later date. ese
transactions are accounted for as product financing arrangements,
and accordingly no commodity inventory, purchases or sales are
recorded. Additionally, the Company engages as a principal in
physical purchase and sale transactions related to inputs to the
renewable fuels and feed ingredient industries.
e Company records its physical commodities revenues on a
gross basis. Operating revenues and losses from its 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, reported earnings from physical
commodities trading may be subject to significant volatility
when calculated under U.S. GAAP.
Clearing and Execution Services (CES)
e Company seeks to provide competitive and efficient clearing
and execution of exchange-traded futures and options for the
institutional and professional trader market segments. rough
its platform, customer orders are accepted and directed to the