INTL FCStone 2014 Annual Report Download - page 34

INTL FCSTONE INC.  Form 10K18
PART I
ITEM 1A Risk Factors
and regulations of general application. Our level of trading
and market-making activities can be affected not only by such
legislation or regulations of general applicability, but also by
industry-specific legislation or regulations.
We have incurred significant additional
operational and compliance costs to meet the
requirements of recent legislation and related
regulations. is legislation and the related
regulations may significantly affect our business
in the future.
Recent market and economic conditions have led to legislation and
regulation affecting the financial services industry. ese changes
could eventually have an effect on our revenue and profitability,
limit our ability to pursue certain business opportunities, impact
the value of assets that we hold, require us to change certain
business practices, impose additional costs on us, and otherwise
adversely affect our business. Accordingly, we cannot provide
assurance that new legislation and regulation will not eventually
have an adverse effect on our business, results of operations, cash
flows and financial condition.
e principal legislation is the Dodd-Frank Act which creates a
comprehensive new regulatory regime governing the OTC and
listed derivatives markets and their participants by requiring,
among other things: centralized clearing of standardized derivatives
(with certain stated exceptions); the trading of clearable derivatives
on swap execution facilities or exchanges; and registration and
comprehensive regulation of new categories of market participants
as “swap dealers” and swap “introducing brokers.” e Dodd-
Frank Act grants regulatory authorities, such as the CFTC and
the SEC, broad rule-making authority to implement various
provisions of the Dodd-Frank Act, including comprehensive
regulation of the OTC derivatives market. ese regulators will
continue to exercise, their expanded rule-making powers in ways
that will affect how we conduct our business.
We have incurred and expect to continue to incur significant
costs to comply with these regulatory requirements. We have
also incurred and expect to continue to incur significant costs
related to the development, operation and enhancement of
our technology relating to trade execution, trade reporting,
surveillance, record keeping and data reporting obligations,
compliance and back-up and disaster recovery plans designed
to meet the requirements of the regulators.
Changes that will be required in our OTC and clearing businesses
may adversely impact our results of operations. Following the
implementation of all of the rules contemplated by the Dodd-
Frank Act, the markets for cleared and non-cleared swaps may
be less robust, there may be less volume and liquidity in these
markets and there may be less demand for our services. Certain
banks and other institutions will be limited in their conduct of
proprietary trading and will be further limited or prohibited
from trading in certain derivatives. e new rules, including the
restrictions on the trading activities for certain banks and large
institutions, could impact transaction volumes and liquidity in
these markets and our revenues would be adversely impacted
as a result.
Changes that will be required in our OTC and clearing businesses
may also adversely impact our cash flows and financial condition.
Registration will impose substantial new requirements upon
these entities including, among other things, capital and margin
requirements, business conduct standards and record keeping and
data reporting obligations. Increased regulatory oversight could
also impose administrative burdens on us related to, among other
things, responding to regulatory examinations or investigations.
We registered our subsidiary, INTL FCStone Markets, LLC, as a
swap dealer on December 31, 2012. Most of the rules affecting
this business have now been finalized, and external business
conduct rules came into effect on May 1, 2013. Nevertheless,
some important rules, such as those setting capital and margin
requirements, have not been finalized or fully implemented,
and it is too early to predict with any degree of certainty how
we will be affected.
e increased costs associated with compliance, and the changes
that will be required in our OTC and clearing businesses, may
adversely impact our results of operations, cash flows, and/or
financial condition.
We are subject to net capital requirements.
e SEC, FINRA and various other regulatory agencies require
our broker-dealer subsidiaries, INTL FCStone Securities Inc.
and FCC Investments, Inc. to maintain specific levels of net
capital. Failure to maintain the required net capital may subject
these subsidiaries to suspension or revocation of registration
by the SEC and suspension or expulsion by FINRA and other
regulatory bodies.
e CFTC and various other self-regulatory organizations require
our futures commission merchant subsidiary, FCStone, LLC, to
maintain specific levels of net capital. Failure to maintain the
required net capital may subject this subsidiary to limitations on
its activities, including suspension or revocation of its registration
by the CFTC and suspension or expulsion by the NFA and
various exchanges of which it is a member.
e FCA requires our UK subsidiary, INTL FCStone Ltd to
maintain specific levels of net capital. Failure to maintain the
required net capital may subject INTL FCStone Ltd to suspension
or revocation of its registration by the FCA.