INTL FCStone 2014 Annual Report Download - page 29

INTL FCSTONE INC.  Form 10K 13
PART I
ITEM 1A Risk Factors
• unanticipated expenses related to technology integration; and
•potential unknown liabilities associated with the acquisition.
It is possible that the integration process could result in the loss of
the technical skills and management expertise of key employees,
the disruption of the ongoing businesses or inconsistencies in
standards, controls, procedures and policies due to possible cultural
conflicts or differences of opinions on technical decisions and
product road maps that adversely affect our ability to maintain
relationships with customers, counterparties, and employees or
to achieve the anticipated benefits of the acquisition.
We face risks associated with our market-making
and trading activities.
We conduct our market-making and trading activities
predominantly as a principal, which subjects our capital to
significant risks. ese activities involve the purchase, sale or
short sale for customers and for our own account of financial
instruments, including equity and debt securities, commodities
and foreign exchange. ese activities are subject to a number of
risks, including risks of price fluctuations, rapid changes in the
liquidity of markets and counterparty creditworthiness.
These risks may limit our ability to either resell financial
instruments we purchased or to repurchase securities we sold
in these transactions. In addition, we may experience difficulty
borrowing financial instruments to make delivery to purchasers
to whom we sold short, or lenders from whom we have borrowed.
From time to time, we have large position concentrations in
securities of a single issuer or issuers in specific countries and
markets. is concentration could result in higher trading
losses than would occur if our positions and activities were less
concentrated.
e success of our market-making activities depends on:
•
the price volatility of specific financial instruments, currencies
and commodities,
•our ability to attract order flow;
•the skill of our personnel;
•the availability of capital; and
•general market conditions.
To attract market-trading, market-making and trading business,
we must be competitive in:
•providing enhanced liquidity to our customers;
•the efficiency of our order execution;
•the sophistication of our trading technology; and
•the quality of our customer service.
In our role as a market maker and trader, we attempt to derive
a profit from the difference between the prices at which we buy
and sell financial instruments, currencies and commodities.
However, competitive forces often require us to:
•match the quotes other market makers display; and
•
hold varying amounts of financial instruments, currencies and
commodities in inventory.
By having to maintain inventory positions, we are subject to a high
degree of risk. We cannot ensure that we will be able to manage
our inventory risk successfully or that we will not experience
significant losses, either of which could materially adversely
affect our business, financial condition and operating results.
We operate as a principal in the OTC derivatives
markets which involves the risks associated with
commodity derivative instruments.
We offer OTC derivatives to our customers in which we act as
a principal counterparty. We endeavor to simultaneously offset
the commodity price risk of the instruments by establishing
corresponding offsetting positions with commodity counterparties,
or alternatively we may offset those transactions with similar but
not identical positions on an exchange. To the extent that we are
unable to simultaneously offset an open position or the offsetting
transaction is not fully effective to eliminate the commodity
derivative risk, we have market risk exposure on these unmatched
transactions. Our exposure varies based on the size of the overall
positions, the terms and liquidity of the instruments brokered,
and the amount of time the positions remain open.
To the extent an unhedged position is not disposed of intra-
day, adverse movements in the commodities underlying these
positions or a downturn or disruption in the markets for these
positions could result in a substantial loss. In addition, any
principal gains and losses resulting from these positions could
on occasion have a disproportionate effect, positive or negative,
on our financial condition and results of operations for any
particular reporting period.
Transactions involving OTC derivative contracts may be adversely
affected by fluctuations in the level, volatility, correlation or
relationship between market prices, rates, indices and/or other
factors. ese types of instruments may also suffer from illiquidity
in the market or in a related market.
OTC derivative transactions are subject to
unique risks.
OTC derivative transactions are subject to the risk that, as a
result of mismatches or delays in the timing of cash flows due
from or to counterparties in OTC derivative transactions or
related hedging, trading, collateral or other transactions, we or
our counterparty may not have adequate cash available to fund
its current obligations.