INTL FCStone 2014 Annual Report Download - page 60

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INTL FCSTONE INC. Form 10K44
PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
due to an increase in both commodity financing arrangements
and commodity origination sales.
Segment income increased 92% to $10.0 million in fiscal 2013
compared to $5.2 million in fiscal 2012, primarily a result of the
increase in operating revenues, partially offset by a $1.0 million
increase in non-variable compensation and benefits. Variable
expenses expressed as a percentage of operating revenues decreased
to 25% in fiscal 2013 compared to 29% in fiscal 2012, driven
by an decrease in variable direct compensation and benefits.
Clearing and Execution Services
We seek to provide competitive and efficient clearing and execution
of exchange-traded futures and options for the institutional and
professional trader market segments. rough our platform, client
orders are accepted and directed to the appropriate exchange for
execution. We then facilitate the clearing of clients’ transactions.
Clearing involves the matching of clients’ trades with the exchange,
the collection and management of client margin deposits to
support the transactions, and the accounting and reporting of
the transactions to clients. We seek to leverage our capabilities
and capacity by offering facilities management or outsourcing
solutions to other FCMs.
In addition, we provide prime brokerage foreign exchange services
to financial institutions and professional traders. We provide our
clients with the full range of OTC products, including 24-hour
a day execution of spot, forwards and options as well as non-
deliverable forwards in both liquid and exotic currencies. We also
operate a proprietary foreign exchange desk that arbitrages the
exchange-traded foreign exchange markets with the cash markets.
e following table provides the financial performance and selected data for Clearing and Execution Services for the periods indicated.
(in millions)
Year Ended September 30,
2014 % Change 2013 % Change 2012
Trading gains, net $ 14.1 (32)% $ 20.6 14% $ 18.1
Commission and clearing fees 96.3 (1)% 97.4 8% 90.3
Consulting and management fees 1.8 (10)% 2.0 33% 1.5
Interest income 1.5 15% 1.3 (35)% 2.0
Operating revenues $ 113.7 (6)% $ 121.3 8% $ 111.9
Transaction-based clearing expenses 62.3 (6)% 66.5 (1)% 67.4
Introducing broker commissions 21.3 5% 20.3 28% 15.8
Interest expense 0.4 —% 0.4 (20)% 0.5
Net operating revenues 29.7 (13)% 34.1 21% 28.2
Variable direct compensation and benefits 5.7 (30)% 8.2 55% 5.3
Net contribution 24.0 (7)% 25.9 13% 22.9
Non-variable direct expenses 17.7 (12)% 20.0 3% 19.4
Segment income $ 6.3 7% $ 5.9 69% $ 3.5
Selected data:
Exchange-traded volume (contracts, 000’s) 75.7 (10)% 84.4 —% 84.1
Exchange-traded average rate per contract(1) $ 1.21 10% $1.10 5% $ 1.05
Average customer segregated equity (millions) 911.7 18% 774.1 16% 669.6
Foreign exchange prime brokerage volume
(U.S. notional, millions) 310,297.5 6% 292,526.7 (21)% 371,637.7
(1) Give-up fee revenues included in commission and clearing fees have been excluded from the calculation of exchange-traded average rate per contract.
For information about the assets of this segment, see Note 22 to the Consolidated Financial Statements.
Year Ended September 30, 2014 Compared to
Year Ended September 30, 2013
Operating revenues decreased 6% to $113.7 million in fiscal 2014
compared to $121.3 million in fiscal 2013.
Commission and clearing fee revenues decreased 1% to
$96.3 million in fiscal 2014, as a result of a 10% decrease in
exchange-traded volumes, which was mostly offset by an increase
in our average rate per contract compared to fiscal 2013. Interest
income, which continues to be constrained by the effect of
low short-term interest rates, was $1.5 million in fiscal 2014
compared to $1.3 million in fiscal 2013. e average level of
customer segregated equity increased 18% to $911.7 million in
fiscal 2014 compared to $774.1 million in fiscal 2013.
Operating revenues from customer prime brokerage, reflected on
the “trading gains, net” line above, decreased 32% to $14.1 million
in fiscal 2014 compared to $20.6 million in fiscal 2013, despite a
6% increase in foreign exchange volumes as a result of declining
spreads and lower performance on the arbitrage desk.