INTL FCStone 2014 Annual Report Download - page 35

INTL FCSTONE INC.  Form 10K 19
PART I
ITEM 1A Risk Factors
Ultimately, any failure to meet capital requirements by our
securities broker-dealer subsidiaries, or our FCM subsidiary or
our UK subsidiary could result in liquidation of the subsidiary.
Failure to comply with the net capital rules could have material
and adverse consequences such as limiting their operations, or
restricting us from withdrawing capital from these subsidiaries.
In addition, a change in the net capital rules, the imposition of
new rules or any unusually large charge against net capital could
limit our operations that require the intensive use of capital.
ey could also restrict our ability to withdraw capital from
these subsidiaries. Any limitation on our ability to withdraw
capital could limit our ability to pay cash dividends, repay debt
and repurchase shares of our outstanding stock. A significant
operating loss or any unusually large charge against net capital
could adversely affect our ability to expand or even maintain our
present levels of business, which could have an adverse effect on
our business, financial condition and operating results.
We are subject to margin funding requirements
on short notice.
Our business involves establishment and carrying of substantial
open positions for customers on futures exchanges and in the
OTC derivatives markets. We are required to post and maintain
margin or credit support for these positions. Although we collect
margin or other deposits from our customers for these positions,
significant adverse price movements can occur which will require
us to post margin or other deposits on short notice, whether or
not we are able to collect additional margin or credit support
from our customers. We maintain borrowing facilities for the
purpose of funding margin and credit support and have systems
to endeavor to collect margin and other deposits from customers
on a same-day basis, there can be no assurance that these facilities
and systems will be adequate to eliminate the risk of margin calls
in the event of severe adverse price movements affecting open
positions of our customers. Generally, if a customer is unable
to meet its margin call, we promptly liquidate the customer’s
account. However, there can be no assurance that in each case
the liquidation of the account will not result in a loss to us or
that liquidation will be feasible, given market conditions, size
of the account and tenor of the positions.
Low short-term interest rates negatively impact
our profitability.
e level of prevailing short-term interest rates affects our
profitability 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, 2014, we had $1.8 billion
in customer segregated assets, the majority of which are generally
invested in short-term treasury securities and money market funds.
Our financial performance generally benefits 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 profitability.
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 significant 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 and commodities law liability.
We face significant 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 significant regulatory action against
us and our subsidiaries could have adverse financial effects or
cause significant 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 11 – Commitments and
Contingencies in the Consolidated Financial Statements.
We are subject to intense competition.
We derive a significant 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.